Non-renewable resource Stackelberg games

• We examine a two-period discrete time Truly Stackelberg non-renewable resource game.
• Dynamically consistent equilibria for various stock and cost conditions are derived.
• We compare the Truly Stackelberg (TS) equilibria with Cournot–Nash (CN) equilibria.
• Allowing sequential-moves generates a number of new equilibria relative to the CN.
• We also examine the effect moving to the TS has upon the follower and consumers.

The market structure for many mineral industries can be described as oligopoly with potential for Stackelberg leadership. This paper derives and analyzes dynamically consistent extraction equilibria in a two-period discrete-time “Truly” Stackelberg (TS) model of non-renewable resource extraction, where firms move sequentially within each period and where both the leader and follower have market power. We show how the leader may be able to manipulate extraction patterns by exploiting resource constraints. Whether the leader wants to speed up its own production relative to the Cournot–Nash (CN) equilibrium depends on the shape of its iso-profit curve, which is affected by the two firms’ relative stock endowments and relative production costs. If the leader extracts faster, then the follower extracts slower, but in aggregate the industry extracts faster. Unlike static Stackelberg games, the follower does not necessarily have a second mover disadvantage.