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On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game

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  • BENCHEKROUN, Hassan
  • WITHAGEN, Cees

Abstract

We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel-fringe game à la Salant 1976) coincide and (ii) when the number of fringe firms becomes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.

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Bibliographic Info

Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 11-2010.

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Length: 38 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mtl:montec:11-2010

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Keywords: cartel-fringe; dominant firm versus fringe; price taking; nonrenewable resources; dynamic games; open-loop versus closed-loop strategies;

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