The Open-Loop von Stackelberg Equilibrium in the Cartel versus Fringe Model: A Reply
David M Newbery ()
Economic Journal, 1992, vol. 102, issue 415, 1485-87
In some cases, the open-loop Stackelberg equilibrium for an oil cartel facing a competitive fringe can be constructed from simple principles, but these fail if the cartel supplies both before and after the fringe as reallocations between these two phases relocate the entire fringe price path. In such cases, the price path need not be continuous and downward jumps are possible and cannot be arbitraged away. Upward jumps can only be arbitraged if competitive agents can store oil at low cost. Such equilibria are dynamically inconsistent. Copyright 1992 by Royal Economic Society.
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