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Cartel Stability in an Exhaustible Resource Model

A simple oligopolistic common-pool exhaustible resource game is considered. By analyzing punishment strategies, including optimal punishments, it is possible to determine which cartel agreements are implementable in a noncooperative play of the game. Joint-profit-maximizing allocations are sustainable for sufficiently low discounting, but in general it is shown that no folk theorem exists for this model. In particular, for sufficiently high elasticities of demand, it is shown that optimal punishments are not sufficiently severe to enforce most stationary symmetric extraction paths, thus confirming the hypothesis that sufficient market power is needed for a cartel to be stable. Copyright 1992 by The London School of Economics and Political Science.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 59 (1992)
Issue (Month): 235 (August)
Pages: 279-93

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Handle: RePEc:bla:econom:v:59:y:1992:i:235:p:279-93
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  1. Bolle, Friedel, 1986. "On the Oligopolistic Extraction of Non-renewable Common-Pool Resources," Economica, London School of Economics and Political Science, vol. 53(212), pages 519-27, November.
  2. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  3. Reinganum, Jennifer F & Stokey, Nancy L, 1985. "Oligopoly Extraction of a Common Property Natural Resource: The Importance of the Period of Commitment in Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 161-73, February.
  4. Eswaran, Mukesh & Lewis, Tracy R, 1984. "Appropriability and the Extraction of a Common Property Resource," Economica, London School of Economics and Political Science, vol. 51(204), pages 393-400, November.
  5. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  7. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  8. Pindyck, Robert S, 1979. "The Cartelization of World Commodity Markets," American Economic Review, American Economic Association, vol. 69(2), pages 154-58, May.
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