Fracking, Renewables & Mean Field Games

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.