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On nonrenewable resource oligopolies: The asymmetric case

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  • Benchekroun, Hassan
  • Halsema, Alex
  • Withagen, Cees

Abstract

We give a full characterization of the open-loop Nash equilibrium of a nonrenewable resource game between two types of firms differing in extraction costs. We show that (i) there almost always exists a phase where both types of firms supply simultaneously, (ii) when the high cost mines are exploited by a number of firms that goes to infinity the equilibrium approaches the cartel-versus-fringe equilibrium with the fringe firms acting as price takers, and (iii) the cheaper resource may not be exhausted first, a violation of the Herfindahl rule, that may be detrimental to social welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 1867-1879

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:11:p:1867-1879

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Nonrenewable resources Nash equilibrium Cartel versus fringe Open loop;

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References

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  1. Mukesh Eswaran & Tracy Lewis, 1985. "Exhaustible Resources and Alternative Equilibrium Concepts," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 459-73, August.
  2. Newbery, David M G, 1981. "Oil Prices, Cartels, and the Problem of Dynamic Inconsistency," Economic Journal, Royal Economic Society, vol. 91(363), pages 617-46, September.
  3. Lewis, Tracy R. & Schmalensee, Richard., 1979. "On oligopolistic markets for nonrenewable natural resources," Working papers 1052-79., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. Chakravorty, Ujjayant & Krulce, Darrell L, 1994. "Heterogeneous Demand and Order of Resource Extraction," Econometrica, Econometric Society, vol. 62(6), pages 1445-52, November.
  5. Groot, F. & Withagen, C.A.A.M. & Zeeuw, A.J. de, 1992. "Note on the open-loop von Stackelberg equilibrium in the cartel versus fringe model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377500, Tilburg University.
  6. Amigues, J-P & Favard, P.author-name: Gaudet, G. & Moreaux, M, 1996. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited," Cahiers de recherche 9628, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  7. Groot, F. & Withagen, C.A.A.M. & Zeeuw, A.J. de, 2003. "Strong time-consistency in the cartel-versus-fringe model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-117032, Tilburg University.
  8. A. M. Ulph & G. M. Folie, 1980. "Exhaustible Resources and Cartels: An Intertemporal Nash-Cournot Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(4), pages 645-58, November.
  9. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  10. Gerard Gaudet & Michel Moreaux & Stephen W. Salant, 2001. "Intertemporal Depletion of Resource Sites by Spatially Distributed Users," American Economic Review, American Economic Association, vol. 91(4), pages 1149-1159, September.
  11. Salo, Seppo & Tahvonen, Olli, 2001. "Oligopoly equilibria in nonrenewable resource markets," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 671-702, May.
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Citations

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Cited by:
  1. Hassan Benchekroun & Cees Withagen, 2012. "On Price Taking Behaviour in a Non-renewable Resource Cartel-Fringe Game," OxCarre Working Papers 080, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Zili Yang, 2013. "Is the Leading Role Desirable?: A Simulation Analysis of the Stackelberg Behavior in World Petroleum Market," Computational Economics, Society for Computational Economics, vol. 42(1), pages 133-150, June.
  3. Ngo Van Long & Stephanie F. McWhinnie, 2010. "The Tragedy of the Commons in a Fishery when Relative Performance Matters," School of Economics Working Papers 2010-07, University of Adelaide, School of Economics.
  4. Hassan Benchekroun & Cees Withagen, 2008. "Nonrenewable Resource Oligopolies And The Cartel-Fringe Game," Departmental Working Papers 2008-02, McGill University, Department of Economics.
  5. Benchekroun, Hassan & Halsema, Alex & Withagen, Cees, 2010. "When additional resource stocks reduce welfare," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 109-114, January.
  6. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
  7. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.

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