International Trade in Exhaustible Resources: A Cartel-Competitive Fringe Model

Larry Karp and Olli Tahvonen

No 1291, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We characterize the open-loop and the Markov-Perfect Stackelberg equilibria for a differential game in which a cartel and a fringe extract a non-renewable resource. Both agents have stock dependent costs. The comparison of initial market shares, across different equilibria, depends on which firm has the cost advantage. The cartel's steady-state market share is largest in the open-loop equilibrium and the smallest in the competitive equilibrium. The initial price may be larger in the Markov equilibria (relative to the open-loop equilibrium), so less market power is consistent with an equilibrium that appears less competitive. The benefit to cartelization increases with market share.

Keywords: Cartel-fringe Model; Dynamic Games; Markov Perfect Equilibrium; Trade in Non-renewable Resources (search for similar items in EconPapers)
JEL-codes: D12 E21 (search for similar items in EconPapers)
Date: 1996-01
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Related works:
Working Paper: International Trade in Exhaustible Resources: A Cartel-Competitive Fringe Model (1995)
Working Paper: International Trade in Exhaustible Resources: A Cartel-Competitive Fringe Model (1995)
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