Munich Personal RePEc Archive

Lignite price negotiation between opencast mine and power plant as a two-stage, two-person, cooperative, non-zero sum game

Jurdziak, Leszek (2006): Lignite price negotiation between opencast mine and power plant as a two-stage, two-person, cooperative, non-zero sum game. Published in: Proceedings of the 8th International Symposium Continuous Surface Mining , Vol. ISBN 3, No. Department of Mining Engineering III, RWTH Aachen University (24. September 2006): pp. 469-476.

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Abstract

Based on the simple model of the deposit the methodology of finding the optimal solution for bilateral monopoly (BM) of lignite mine and power plant is shown taking into account pit optimisation. It is proposed to treat lignite price negotiation as a kind of game. In the first stage (cooperative) both sides should select the ultimate pit maximising joint profits of BM and in the second one (competitive) the agreement should be achieved regarding profit division. This can be realised through side payments or by establishing the lignite transfer price. Lack of cooperation and opportunism can lead to the suboptimal solution – excavation of the smaller pit. Due to information asymmetry realisation of the optimal solution is more probably in vertically integrated firms. Dynamic adjustments of LOM BM plan to short-term changes of energy market using optimisation, BM model, game theory and their valuation as real options is the new direction of further re-search.

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