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

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  • Jurdziak, Leszek

Abstract

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.

Suggested Citation

  • Jurdziak, Leszek, 2006. "Lignite price negotiation between opencast mine and power plant as a two-stage, two-person, cooperative, non-zero sum game," MPRA Paper 1600, University Library of Munich, Germany, revised 24 Sep 2006.
    • Handle: RePEc:pra:mprapa:1600
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    File URL: https://mpra.ub.uni-muenchen.de/1600/1/MPRA_paper_1600.pdf
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    References listed on IDEAS

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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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    Cited by:

    1. Meleshkina, Anna (Мелешкина, Анна) & Shastitko, Anastasia (Шаститко, Анастасия), 2018. "Institutional Initiative of Functioning of Firms in Conditions of a Bilateral Monopoly [Институциональная Инициатива Функционирования Фирм В Условиях Двусторонней Монополии]," Working Papers 041812, Russian Presidential Academy of National Economy and Public Administration.

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    More about this item

    Keywords

    bilateral monopoly; co-operative game; price negotiation; non-zero sum game; Pareto optimal solution; lignite price; power plant; lignite mine; pit optimisation; optimal ultimate pit; pit phases;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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