OPEC’s crude game: The supply curve in a dynamic, strategic environment

In the new CAMP working paper 10/2019, Hvinden answers the question of how non-cooperative oligopolists’ supply responds optimally to changes in the market environment. The motivation of the paper is the need for more research on evolving OPEC behavior. Hvinden rationalizes OPEC’s behavior in an infinitely repeated game of Cournot competition with imperfect monitoring, capacity constraints to output, and demand evolving as a Markov chain. He finds that unanticipated changes to OPEC’s strategic environment will persistently alter their behavior and create breaks in the joint stochastic distribution of equilibrium prices and quantities.

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