In mid-2010, Saudi Arabia and Venezuela (both members of OPEC) produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $20 per barrel, and the price of oil averaged $80 per barrel. Each country had the capacity to produce an extra 1 million barrels per day. At that time, it was estimated that each 1-million-barrel increase in supply would depress the average price of oil by $10. a. Fill in the missing profit entries in the payoff table. b. What actions should each country take and why?Venezuela 3 M barrels 4 M barrels 8 M barrels _____, _____ _____, _____ Saudi Arabia 9 M barrels _____, _____ _____, _____ c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 430 Summary 431 c. Does the asymmetry in the countries’ sizes cause them to take different attitudes toward expanding output? Explain why or why not. Comment on whether or not a prisoner’s dilemma is present
In mid-2010, Saudi Arabia and Venezuela (both members of OPEC)
produced an average of 8 million and 3 million barrels of oil a day,
respectively. Production costs were about $20 per barrel, and the price of
oil averaged $80 per barrel. Each country had the capacity to produce
an extra 1 million barrels per day. At that time, it was estimated that each
1-million-barrel increase in supply would depress the average price of oil
by $10.
a. Fill in the missing profit entries in the payoff table.
b. What actions should each country take and why?Venezuela
3 M barrels 4 M barrels
8 M barrels _____, _____ _____, _____ Saudi Arabia
9 M barrels _____, _____ _____, _____
c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 430
Summary 431
c. Does the asymmetry in the countries’ sizes cause them to take different
attitudes toward expanding output? Explain why or why not. Comment
on whether or not a prisoner’s dilemma is present.
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