Cheap Talk of Supply-demand Games in the World Oil Market

The skyrocketing of the oil price aroused the attention to the supply-demand relationship of the world oil market. Aiming at the incomplete information between suppliers and consumers, this paper studied the production strategy of the suppliers and the judgment of the consumers of the oil market with a signaling game model to deduce the sufficient and essential conditions of the three kinds of market equilibria---separating equilibrium, pooling equilibrium and hybrid equilibrium, and finally made comparison between the three market efficiencies. The result is that the separating equilibrium is the most efficient Bayesian equilibrium of the above three. So the suppliers will transmit correct signals as long as the cost of cheating is high enough and the most efficient market equilibrium could be achieved.