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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 non-renewable 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 the smallest in the competitive equilibrium. The initial price may be larger in the Markov equilibria (relative to the open-loop equilibrium), so less market power is consistent with an equilibrium that appears less competitive. The benefit to cartelization increases with market share.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1291.

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Date of creation: Jan 1996
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Handle: RePEc:cpr:ceprdp:1291

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Keywords: Cartel-fringe Model; Dynamic Games; Markov Perfect Equilibrium; Trade in Non-renewable Resources;

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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. 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.
  3. 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.
  4. Polasky, Stephen, 1992. "Do oil producers act as 'Oil'igopolists?," Journal of Environmental Economics and Management, Elsevier, vol. 23(3), pages 216-247, November.
  5. 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.
  6. 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.
  7. 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.
  8. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
  9. 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.
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Cited by:
  1. Groot, Fons & Withagen, Cees & de Zeeuw, Aart, 2003. "Strong time-consistency in the cartel-versus-fringe model," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 287-306, November.
  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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