Abstract
ABSTRACT Oil and gas resources have been considered valuable assets, associated with potential conflicts due to distinct interests of many agents involved in their exploration, such as producing and consuming countries, governments and companies. These conflicts can show up under many situations and market conditions, such as partnerships, joint development, optimal outputs and reserve maximization. Game theory is known as a methodology that improves the decision-making processes by better understanding the players’ specific motivations, strategic interactions and payoff estimation. A widely used framework for modeling social and economic phenomena is the 2 x 2 strategic games, of which include classical forms such as Prisoner’s Dilemma, Stag Hunt, and Battle of Sexes. Therefore, this paper proposes to examine relevant realistic and real-world cases of the oil and gas industry in the form of 2 x 2 strategic games, aiming to investigate game theory approaches to aid in the discussion and resolution of the main dilemmas faced.
Highlights
Due to the wide range of possible conflicts, from small disagreements to international military campaigns, there is a great demand for formal methodologies to understand and evaluate realworld conflicts (Hipel et al, 2011)
They applied a distinct framework from the topologies of the 2 x 2 strategic games, making the analysis more difficult through the classification proposed by Robinson & Goforth (2005)
Robinson & Goforth (2005) argued that the most relevant 2 x 2 strategic games are the following: (i) Prisoner’s Dilemma, a Nash equilibrium that coincides with the Maxi-min solution, but this solution is not the highest payoff for the players; (ii) Stag Hunt, two Nash equilibria, one with bigger payoffs than the other, and the smaller coinciding with the Maxi-min solution; (iii) Chicken game, two reciprocal Nash equilibria and neither of them corresponding to the Maxi-min solution; (iv) two Battle of the Sexes games, both containing two reciprocal Nash equilibria and the first coinciding with the Maxi-min solution; and (v) two Coordination games, both containing two Nash equilibria but always only one solution with the highest possible payoffs for both players
Summary
Due to the wide range of possible conflicts, from small disagreements to international military campaigns, there is a great demand for formal methodologies to understand and evaluate realworld conflicts (Hipel et al, 2011). Oliveira et al (2016) mentioned that the oil and gas industry is characterized as a competitive environment with many current challenges, such as price fluctuation, environmental conservation, and partnership among major companies This industry is characterized by huge investment requirements, generally executed by partnerships and joint ventures for cost and risk sharing (Castillo & Dorao, 2013). The process of allocating capital into the correct portfolio is a critical factor for the oil and gas industry when evaluating possible partnerships (Lopes & Almeida, 2013) Another source of potential conflicts among partnerships is the vertical integration between oil and gas exploration companies and their suppliers, with the goal to share their particular risks and costs (Hamacker & Martins, 2015). The presence of multiple agents and the impact that each distinct strategy has over the final outcomes make the oil and gas industry an interesting field for game theory applications
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