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Lignite price negotiation between opencast mine and power plant as a two-stage, two-person, cooperative, non-zero sum game

Listed author(s):
  • Jurdziak, Leszek

Based on the simple model of the deposit the methodology of finding the optimal solution for bilateral monopoly (BM) of lignite mine and power plant is shown taking into account pit optimisation. It is proposed to treat lignite price negotiation as a kind of game. In the first stage (cooperative) both sides should select the ultimate pit maximising joint profits of BM and in the second one (competitive) the agreement should be achieved regarding profit division. This can be realised through side payments or by establishing the lignite transfer price. Lack of cooperation and opportunism can lead to the suboptimal solution – excavation of the smaller pit. Due to information asymmetry realisation of the optimal solution is more probably in vertically integrated firms. Dynamic adjustments of LOM BM plan to short-term changes of energy market using optimisation, BM model, game theory and their valuation as real options is the new direction of further re-search.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1600.

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Date of creation: 24 Sep 2006
Date of revision: 24 Sep 2006
Publication status: Published in Proceedings of the 8th International Symposium Continuous Surface Mining Department of Mining Engineering III, RWTH Aachen University.ISBN 3(2006): pp. 469-476
Handle: RePEc:pra:mprapa:1600
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  1. Blair, Roger D & Kaserman, David L, 1987. "A Note on Bilateral Monopoly and Formula Price Contracts," American Economic Review, American Economic Association, vol. 77(3), pages 460-463, June.
  2. Jurdziak, Leszek, 2006. "Schemat arbitrażowy Nasha, a podział zysków w bilateralnym monopolu kopalni węgla brunatnego i elektrowni. Cześć pierwsza – podstawy teoretyczne
    [Nash bargaining solution and the split of profit in
    ," MPRA Paper 4142, University Library of Munich, Germany, revised 17 Jan 2006.
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