Cartel and Oligopoly Pricing of Nonreplenishable Natural Resources
Few real-world market structures correspond well to either of the textbook polar cases of absolute monopoly and perfect competition. Formal models of two intermediate structures have been thoroughly and usefully analyzed under static conditions.† The first model assumes that a single firm or a stable cartel controls a sizable fraction of industry capacity and faces a competitive fringe of many small suppliers, each too tiny to have any noticeable effect on market price. Fringe members thus take price as beyond their control and choose output to maximize profit. The dominant firm or cartel maximizes its profit subject to the constraint imposed by fringe supply behavior. The second model deals with noncooperative or Cournot-Nash oligopoly. A finite number of sellers is assumed, each large enough to have some control over price. Market equilibrium is defined as a situation in which no individual seller can increase its profits by changing only its own output, given the outputs of the other sellers.
KeywordsNash Equilibrium Equilibrium Price Inventory Level Market Equilibrium Marginal Revenue
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