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On Price Taking Behaviour in a Non-renewable Resource Cartel-Fringe Game

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  • Hassan Benchekroun
  • Cees Withagen

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 be- comes 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 Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 080.

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Date of creation: 2012
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Handle: RePEc:oxf:oxcrwp:080

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Related research

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

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References

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Cited by:
  1. Kicsiny, R. & Varga, Z. & Scarelli, A., 2014. "Backward induction algorithm for a class of closed-loop Stackelberg games," European Journal of Operational Research, Elsevier, vol. 237(3), pages 1021-1036.

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