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Stockpiling Strategies and Cartel Prices

Author

Listed:
  • Albert L. Nichols
  • Richard J. Zeckhauser

Abstract

Consuming nations can stockpile cartelized commodities to suppress prices in future periods. This analysis employs a multiperiod framework and simple concepts of game theory to asses stockpiling strategies by the government(s) of consuming nation(s) and pricing strategies by a cartel. Ultimate consumers are active, though nonstrategic, players in the game. The paper examines outcomes when discount rates, time horizons, resource constraints, and storage and production costs vary; when consuming nations do not cooperate fully; and when a consuming nation or a cartel can issue threats and promises. Both producers and consumers realize economic benefits from stockpiling in most of the cases that we investigate. Depletable resources are not considered except in an appendix. The net benefits of stockpiling constrained resources are problematical.

Suggested Citation

  • Albert L. Nichols & Richard J. Zeckhauser, 1977. "Stockpiling Strategies and Cartel Prices," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 66-96, Spring.
    • Handle: RePEc:rje:bellje:v:8:y:1977:i:spring:p:66-96
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    Cited by:

    1. Ibrahim Abada & Olivier Massol, 2010. "Security of supply in the European Gas Market A model-based analysis," EconomiX Working Papers 2010-13, University of Paris Nanterre, EconomiX.
    2. Creti, Anna & Villeneuve, Bertrand, 2008. "Equilibrium Storage in a Markov Economy," MPRA Paper 11944, University Library of Munich, Germany.
    3. Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    4. Anna Creti & Bertrand Villeneuve, 2013. "Commodity storage with durable shocks : A simple Markovian model," Post-Print hal-01517436, HAL.
    5. Martin C. McGuire, 2010. "Economic Analysis and International Security," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(2), pages 313-346, March.
    6. Goe, Michele & Gaustad, Gabrielle, 2014. "Identifying critical materials for photovoltaics in the US: A multi-metric approach," Applied Energy, Elsevier, vol. 123(C), pages 387-396.
    7. Richard D. Farmer, 2006. "Risk-Smoothing Across Time and the Demand for Inventories: A Mean-Variance Approach," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 699-722, Fall.
    8. R. Glenn Hubbard, 1983. "Uncertain Lifetimes, Social Security, and Individual Saving," Discussion Papers 581, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Igal Hendel & Paolo Dudine & Alessandro Lizzeri, 2006. "Storable Good Monopoly: The Role of Commitment," American Economic Review, American Economic Association, vol. 96(5), pages 1706-1719, December.
    10. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    11. Van Kooten, G. C. & Spriggs, John & Schmitz, Andrew, 1989. "The Impact of Canadian Commodity Stabilization Programs on Risk Reduction and the Supply of Agricultural Commodities," Working Papers 244037, Agriculture and Agri-Food Canada.
    12. repec:dau:papers:123456789/5384 is not listed on IDEAS
    13. Chaton, Corinne & Creti, Anna & Villeneuve, Bertrand, 2009. "Storage and security of supply in the medium run," Resource and Energy Economics, Elsevier, vol. 31(1), pages 24-38, January.
    14. Abada, I. & Massol, O., 2011. "Security of supply and retail competition in the European gas market: Some model-based insights," Working Papers 11/04, Department of Economics, City University London.
    15. Huanan Li & Xin Chen, 2016. "Dynamic game analysis on China’s public and private oil stockpiles," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 715-723, October.
    16. Martin McGuire, 2006. "Uncertainty, Risk Aversion, And Optimal Defense Against Interruptions In Supply," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(4), pages 287-309.
    17. Martin C. McGuire, 2000. "Provision for Adversity," Journal of Conflict Resolution, Peace Science Society (International), vol. 44(6), pages 730-752, December.
    18. repec:dau:papers:123456789/2280 is not listed on IDEAS
    19. Hartwick, John M., 1980. "Nonrenewable Resource Exploitation by a Dominant Seller and A Fringe Group with Rising Costs," Queen's Institute for Economic Research Discussion Papers 275160, Queen's University - Department of Economics.
    20. Abada, Ibrahim & Massol, Olivier, 2011. "Security of supply and retail competition in the European gas market.: Some model-based insights," Energy Policy, Elsevier, vol. 39(7), pages 4077-4088, July.
    21. Chen, Xin & Mu, Hailin & Li, Huanan & Gui, Shusen, 2014. "Using stockpile delegation to improve China׳s strategic oil policy: A multi-dimension stochastic dynamic programming approach," Energy Policy, Elsevier, vol. 69(C), pages 28-42.

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