On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game

Hassan Benchekroun and Cees Withagen

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel-fringe game à la Salant 1976) coincide and (ii) when the number of fringe firms becomes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.

Keywords: cartel-fringe; dominant firm versus fringe; price taking; nonrenewable resources; dynamic games; open-loop versus closed-loop strategies (search for similar items in EconPapers)
JEL-codes: D43 L13 Q30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010
New Economics Papers: this item is included in nep-com and nep-ind
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Related works:
Journal Article: On price taking behavior in a nonrenewable resource cartel–fringe game (2012)
Working Paper: On Price Taking Behavior in a Nonrenewable Resrouce Cartel-Fringe Game (2011)
Working Paper: ON PRICE TAKING BEHAVIOR IN A NONRENEWABLE RESOURCE CARTEL-FRINGE GAME (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:11-2010

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