Fracking, Renewables & Mean Field Games

25 Pages Posted: 19 Jul 2015

See all articles by Patrick Chan

Patrick Chan

Princeton University - Program in Applied and Computational Mathematics

Ronnie Sircar

Princeton University - Department of Operations Research and Financial Engineering

Date Written: July 17, 2015

Abstract

The dramatic decline in oil prices, from around $110 per barrel in June 2014 to less than $50 in January 2015, highlights the importance of competition between different energy sources. Indeed, the sustained price drop has been primarily attributed to OPEC’s strategic decision not to curb its oil production in the face of increased supply of shale oil in the US, spurred by the technological innovation of “fracking”. We study how continuous time Cournot competitions, in which firms producing similar goods compete with one another by setting quantities, can be analyzed as continuum dynamic mean field games. In this context, we illustrate how the traditional oil producers may react in counter-intuitive ways in face of competition from alternative energy sources.

Keywords: Mean Field Games, Hamilton–Jacobi–Bellman equation, Dynamic Games, OPEC, Fracking

Suggested Citation

Chan, Patrick and Sircar, Ronnie, Fracking, Renewables & Mean Field Games (July 17, 2015). Available at SSRN: https://ssrn.com/abstract=2632504 or http://dx.doi.org/10.2139/ssrn.2632504

Patrick Chan (Contact Author)

Princeton University - Program in Applied and Computational Mathematics ( email )

Princeton, NJ 08544
United States

Ronnie Sircar

Princeton University - Department of Operations Research and Financial Engineering ( email )

Princeton, NJ 08544
United States

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