Inefficiency of credible strategies in oligopolistic resource markets with uncertainty |
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Institution: | 1. De Nederlandsche Bank, Westeinde 1, Amsterdam 1017 ZN, the Netherlands;2. University of Amsterdam, Roetersstraat 11, Amsterdam 1018 WD, the Netherlands;1. Zurich Center for Neuroeconomics (ZNE), Department of Economics, University of Zurich, Blümlisalpstrasse 10, Zurich CH-8006, Switzerland;2. Center for Research in Experimental Economics (CREED), Amsterdam School of Economics, University of Amsterdam, Roetersstraat 11, Amsterdam 1018 WB, the Netherlands;1. Department of Economics, University of Hagen, Universittsstr. 41, 58097 Hagen, Germany;2. Department of Economics, University of Siegen, Unteres Schloss 3, 57072 Siegen, Germany |
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Abstract: | The implications of different information patterns for firms in oligopolistic resource markets are considered. The traditional open-loop Nash equilibrium with static information sets is one of many possible Nash equilibria and is not suitable for stochastic environments. When shocks to resource growth are serially uncorrelated, there are no gains from conditioning the harvest on past stock levels and the feedback or credible Nash equilibrium is the appropriate Nash equilibrium concept. This credible equilibrium assumes that firms have knowledge of current stocks of reserves, which typically leads to more rapid extraction of the resource and possibly extinction. Since the open-loop Nash equilibrium is efficient when demand is iso-elastic and extraction costs are zero, it is clear that an increase in information can be detrimental to firms in the industry. |
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