A game theoretic approach for pricing petroleum and determining investors' production volume with the consideration of government and intermediate producers

In this paper, the profitability of investment in refinery building is examined and the effects of the model on each agent are considered, using a multi-agent method. This model covers the knowledge gap in the literature by investigating a comprehensive situation that is currently a part of strategic energy plans in developing countries. Deploying refineries in Iran is desirable due to the high level of gasoline consumption in comparison with the internal production. Given the scale of the required investments and their high risks, private investors are unwilling to invest. The main objective of governments is to provide investors the needed information so that they can decide logically about investment based on it. Using a game theory approach, this paper reveals significant concerns from the investment point of view with implications for the future of the gasoline industry. The Stackelberg game theory with three phases is applied to conduct our analysis. The current paper demonstrates that by determining the amount of subsidies and intermediate producers' production, governments can reassure investors that their investments will be profitable. A sensitivity analysis and a numerical example are presented to validate the proposed method. Finally, managerial sights into the investment process are brought forward.