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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Volume (Year): 59 (1992)
Issue (Month): 235 (August)
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