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International Trade in Exhaustible Resources: A Cartel-Competitive Fringe Model

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  • Karp, Larry
  • Tahvonen, Olli

Abstract

We characterize the open-loop and the Markov perfect Stackelberg equilibria for a differential game in which a cartel and a fringe extract a nonrenewable resource. Both agents have stock dependent costs. The comparison of initial market shares, across different equilibria, depends on which firm has the cost advantage. The cartel's steady state market share is largest in the open loop equilibrium and smallest in the competitive equilibrium. The initial price may be larger in the Markov equilibria, so a decrease in market power may make the equilibrium appear less competitive. The benefit to cartelization increases with market share.

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Bibliographic Info

Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt9dt5614j.

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Date of creation: 01 Jul 1995
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Handle: RePEc:cdl:agrebk:qt9dt5614j

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Keywords: cartels; economics; equilibrium; game theory;

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References

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  1. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneeseā€  & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier.
  2. Pindyck, Robert S, 1978. "Gains to Producers from the Cartelization of Exhaustible Resources," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 238-51, May.
  3. Thomas, J, 1992. "Cartel Stability in an Exhaustible Resource Model," Economica, London School of Economics and Political Science, vol. 59(235), pages 279-93, August.
  4. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
  5. Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 136-161, October.
  6. 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.
  7. Polasky, Stephen, 1992. "Do oil producers act as 'Oil'igopolists?," Journal of Environmental Economics and Management, Elsevier, vol. 23(3), pages 216-247, November.
  8. Groot, Fons & Withagen, Cees & de Zeeuw, Aart, 1992. "Note on the Open-Loop von Stackelberg Equilibrium in the Cartel versus Fringe Model," Economic Journal, Royal Economic Society, vol. 102(415), pages 1478-84, November.
  9. Olli Tahvonen, 1991. "On the dynamics of renewable resource harvesting and pollution control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 97-117, March.
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Cited by:
  1. 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.
  2. Cees Withagen, 1998. "Untested Hypotheses in Non-Renewable Resource Economics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 623-634, April.

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