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On Nonrenewable Resource Oligopolies: The Asymmetric Case

Hassan Benchekroun (), Alex Halsema and Cees Withagen

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

Abstract: We give a full characterization of the open-loop Nash equilibrium of a non-renewable resource asymmetric game. We show that (i) there almost always exists a phase where both supply simultaneously positive quantities, (ii) when the high cost mine is exploited by a number of firms that goes to infinity the equilibrium approaches the cartel-versus-fringe equilibrium with the fringe firms acting as price takers, (iii) the cheaper resource may not be exhausted first. This last result has an interesting implication: more competition in the industry may be detrimental to social welfare. Increasing the number of high cost firms may be welfare reducing. This is because a larger number of high cost firms may result in an inefficient order of exhaustion of the resources: the cheaper resource being exhausted first.

Keywords: nonrenewable resources; Nash equilibrium; cartel-versus-fringe; open-loop (search for similar items in EconPapers)
Date: 2008
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