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A New Game Theoretical Approach for Modeling Export Energy Markets Equilibria

Abstract:
For resource-based economies, regulating exports is crucial. Nevertheless, we observe different countries deploying different export policies. We explain this difference via strategic interactions by giving two competing countries the possibility to design their export markets and select the level of competition they exert. In a first step, we test standard models and find that they fail to explain the multitude of observed behaviors: under the closed loop Nash equilibrium paradigm, the equilibrium is reached when countries completely open their export market. The Stackelberg game on the other hand concentrates the market in a plausible way but is not symmetric since it appoints a leader and follower. In a second step, we let countries choose between being strategic or passive in their interaction and demonstrate that the competitive outcome that we find in the closed loop Nash game rarely occurs. Only this last setup complies with the commonly observed situations.Keywords: Game theory, Cournot models, Open/closed loop models, Stackelberg models, Divisionalization

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Economy – Other

JEL Codes: Q48: Energy: Government Policy, L13: Oligopoly and Other Imperfect Markets, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, D42: Market Structure, Pricing, and Design: Monopoly, Q41: Energy: Demand and Supply; Prices, D43: Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection

Keywords: Game theory, Cournot models, Open/closed loop models, Stackelberg models, Divisionalization

DOI: 10.5547/01956574.39.5.iaba

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Published in Volume 39, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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