Strong Time-Consistency in the Cartel-Versus-Fringe Model

Abstract

In the seventies and eighties, the theory of exhaustible natural resources developed a branch, which was called the cartel-versus-fringe model, to characterize markets with one large coherent cartel and a big number of small suppliers named the fringe. It was considered appropriate to use the von Stackelberg solution concept, but because solutions could only be derived in an open-loop, framework time-inconsistency resulted. This paper solves time-inconsistency in the cartel- versus-fringe model and provides the feedback von Stackelberg equilibrium for all cost configurations.

JEL Classification: L11, C73