Modelling Non-competitive Behavior in Commodity Markets: A Game Theoretic Approach

Roby Rajan

Empirical Economics, 1990, vol. 15, issue 4, 347-66

Abstract: In this paper, we provide a coalitional alternative to the perfectly competitive and purely non-cooperative assumptions commonly employed in the modeling of commodity markets. These assumptions of perfect competition or pure non-cooperation are usually imposed exogenously without providing an economic basis for assuming why firms that could stand to gain by cooperating would not in fact do so. Three behavioral rules embodied in three different cooperative games are discussed in this paper and a methodology for predicting the coalition structures that would result from each of these is offered. By applying games to the U.S. copper industry of the 1970s, we show that the theory of games can be profitably employed in conjunction with the traditional "institutional approach" of industrial organization to yield useful economic predictions.

Date: 1990
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