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On Price Taking Behavior In A Nonrenewable Resource Cartel-Fringe Game

  • Hassan Benchekroun

    ()

  • Cees Withagen

    ()

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 a la Salant 1976) coincide and (ii) when the number of fringe firms becomes 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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File URL: http://www.mcgill.ca/files/economics/OnPriceTakingBehaviorinaNonrenewableResourceCartelFringeGame.pdf
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Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2010-02.

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Length: 35 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:mcl:mclwop:2010-02
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