Letters to the Editor: Oil and Government Don't Mix Wall Street Journal; New York; Dec 17, 1999, Eastern edition,   A15  

 
 
 
 
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Inspired by Thomas Schelling's writings on game theory, Mr. Andersen suggests the U.S. could destabilize OPEC by using the Strategic Petroleum Reserve to stabilize world oil prices, stopping the price from getting too low or too high.

I think he has it backward. What the U.S. should do is sell oil only from the Reserve, not buy, and sell it when OPEC is in one of its phases of successful cartel discipline and high oil prices. Moreover, this should be utterly secret. The result would be that an OPEC member, seeing more oil sale on the world market than OPEC had agreed upon, will conclude that other OPEC members are cheating on the cartel. Mutual recriminations will result, and, one hopes, a general busting from output quotas.

Businesses have known about this for a long time. Suppose a business suspects that its two suppliers have agreed that neither one will offer a discount from the list price (illegal, but it happens). The strategic response is to sow dissension by secretly hinting to supplier A that supplier B has broken the agreement by offering a discount.

Eric Rasmusen

Professor of Business Economics and Public Policy
Indiana University Bloomington, Ind.