OPEC, the Organization of Petroleum Exporting Countries, was founded in 1969. Their original objective was to form a cartel to increase the price that they receive for their oil exports. Create a prisoner’s dilemma type game for two large members of OPEC (e.g. Saudi Arabia and Indonesia). Create numbers, where payoffs are total annual oil export revenues for each of these two countries. Verbally explain how you got your numbers. Find the Nash equilibrium. Based on this model, what strategy is in the oil exporters’ best interest (Nash or otherwise)? How do they make it happen? Create another prisoner’s dilemmamodel for all of OPEC on one side, and all non OPEC oil exporting nations on the other side. Create numbers, where payoffs are total annual oil export revenues for each of the two sides. Verbally explain how you created your numbers. Also create your numbers applying the fact that OPEC’s total production capacity is greater than total non OPEC exports combined. Find and explain the Nash equilibrium. Russia and Norway are two major oil exporters that do not belong to OPEC, but have been granted an observer status within OPEC. Based on your prisoner’s dilemma numbers from part B, explain what strategy one would expect the non OPEC oil exporters to follow. Always assume profit maximizing behavior.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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. OPEC, the Organization of Petroleum Exporting Countries, was founded in 1969. Their original objective was to form a cartel to increase the price that they receive for their oil exports.

Create a prisoner’s dilemma type game for two large members of OPEC (e.g. Saudi Arabia and Indonesia). Create numbers, where payoffs are total annual oil export revenues for each of these two countries. Verbally explain how you got your numbers. Find the Nash equilibrium. Based on this model, what strategy is in the oil exporters’ best interest (Nash or otherwise)? How do they make it happen?
Create another prisoner’s dilemmamodel for all of OPEC on one side, and all non OPEC oil exporting nations on the other side. Create numbers, where payoffs are total annual oil export revenues for each of the two sides. Verbally explain how you created your numbers. Also create your numbers applying the fact that OPEC’s total production capacity is greater than total non OPEC exports combined. Find and explain the Nash equilibrium.
Russia and Norway are two major oil exporters that do not belong to OPEC, but have been granted an observer status within OPEC. Based on your prisoner’s dilemma numbers from part B, explain what strategy one would expect the non OPEC oil exporters to follow. Always assume profit maximizing behavior.

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