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On Nonrenewable Resource Oligopolies : The Asymmetric Case

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Author Info

  • BENCHEKROUN, Hassan
  • HALSEMA, Alex
  • WITHAGEN, Cees

Abstract

We give a full characterization of the open-loop Nash equilibrium of a non-renewable resource asymmetric game. We show that (i) there almost always exists a phase where both supply simultaneously positive quantities, (ii) when the high cost mine is 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, (iii) the cheaper resource may not be exhausted first. This last result has an interesting implication: more competition in the industry may be detrimental to social welfare. Increasing the number of high cost firms may be welfare reducing. This is because a larger number of high cost firms may result in an inefficient order of exhaustion of the resources: the cheaper resource being exhausted first.

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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 13-2008.

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Length: 28 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mtl:montec:13-2008

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Related research

Keywords: nonrenewable resources; Nash equilibrium; cartel-versus-fringe; open-loop;

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References

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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Chakravorty, Ujjayant & Krulce, Darrell L, 1994. "Heterogeneous Demand and Order of Resource Extraction," Econometrica, Econometric Society, vol. 62(6), pages 1445-52, November.
  10. 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.
  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, 2010. "On Price Taking Behavior In A Nonrenewable Resource Cartel-Fringe Game," Departmental Working Papers 2010-02, McGill University, Department of Economics.
  2. Van Long, Ngo & McWhinnie, Stephanie F., 2012. "The tragedy of the commons in a fishery when relative performance matters," Ecological Economics, Elsevier, vol. 81(C), pages 140-154.
  3. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
  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. 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.
  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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