Inefficiency of credible strategies in oligopolistic resource markets with uncertainty (Q1102169)

The paper discusses the consequences of different information structures in an N-person dynamic nonzero-sum game with the Nash equilibrium concept. The model considered is a (stochastic) ordinary differential equation which describes the harvesting (by N firms) of a common renewable resource. Each firm wants to maximize its expected value of the discounted stream of profits. The price curve is a decreasing function with respect to the total harvesting rate of all firms together. When the actions of the firms do not lead to extinction, the planning horizon is finite. The paper discusses open-loop, closed-loop, memoryless and feedback information structures and the consequences for the solution. In addition the sub-game perfect Nash equilibrium solution is discussed. Interpretations of the results are given in an economic context, in terms of shadow prices, social benefit function, efficient and collusive (if the firms form a cartel) outcomes, etc. The well-known fact that an increase in information can be detrimental is elaborated upon. The mathematical techniques used are the maximum principle, the Hamilton- Jacobi-Bellman equation and some Ito-stochastic calculus.