Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 17 of 36 - Oligopoly
Section 13 of 23
…
Figure 4 - A Common-Resources Game
In this game between two firms pumping oil from a common pool the profit each earns depends on both the number of wells it drills and the number of wells drilled by the other firm.
…
We can consider the problem of overuse of common resources using game theory.
In Figure 4 two oil companies, Texaco and Exxon, own adjacent oil fields.
A common pool of oil worth $12 million extends under the two fields.
Drilling a well to recover the oil costs $1 million.
…
If both Texaco and Exxon drill one well, each will get half of the oil and earn a $5 million profit.
If Texaco drills a second well Texaco has two of the three wells
· Texaco gets two-thirds of the oil, and a profit of $6 million.
· Exxon gets one-third of the oil, and a profit of $3 million.
…
If Exxon also drills a second well, the two companies again split the oil quantity.
Each company bears the cost of a second well and profit is only $4 million for each company.
Drilling two wells is a dominant strategy for Texaco and Exxon.
…
If both companies had only drilled one well they would have gained $5 million profit rather than $4 million after drilling two wells.
Here again, the self-interest of the two game players leads to an inferior outcome.
… …
overuse of resources
shigen no kajō shiyō
資源の過剰使用


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