Pricing Policies for a Two-p.4rt Exhac’stible Resource Cartel

This paper examines pricing policies for OPEC under the assumption that the cartel is composed of a block of s/~e~t/~r countries with large cash needs and a t.lock of .yuI’ercountrics with little immediate need for cash and a loHcr rate of discount. The decision problem for the twopart cartel is embodied in a game-theoretic framework and the optimal bargaining solution is computed using results from the theory of cooperative games developed by Nash. The set of feasible bargaining points---and the corresponding Nash solution-+ computed under two assumptions OR the behavior of output shares: that they are subject to choice and that they are fixed at historical values. Our results suggest that for fixed output shares, there is littl: room fcr bargaining, and the price path approximates the optimal monopoly price path. If the &arcs are subject to control, optimal paths depend significantly on the relative bargaining power ol’ each block,