Price versus Quantity Rules in Dynamic Competition: The Case of Nonrenewable Natural Resources.

Price and quantity competition are compared in the dynamic game framework of a nonrenewable natural resource duopoly. It is shown that a price-decision-rule (quantity-decision-rule) strategy dominates, in terms of a higher present value of the initial resource stocks, if the resources are complements (substitutes). This result is shown to hold for subgame-perfect equilibria. It holds although equilibrium price paths resulting from those two types of strategies will cross. It is shown, however, that even though the price trajectories cross, initial equilibrium prices resulting from the price-rule strategy will be lower than the initial equilibrium prices resulting from the quantity-rule strategy. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.