Optimal amount of resource extraction under duopoly

Abstract

The purpose of this thesis is to analyze the optimal amount of depletable natural resource extraction under duopoly through a dynamic model. The starting point comes from the world boron market in which there are two big players (U.S.A. and Turkey). It is assumed that both of these countries extract resources from their own stocks and sell in the same market. The model is solved in two periods. Specifically, it aims to find equilibrium that at least one country does not extract in the first period, but in the second. The conditions for the existence of such an equilibrium are analyzed. Furthermore, the effect of expected increase in demand in the second period is examined. Excel - Solver is used for simulation analysis to see the resource extraction amounts graphically under different conditions. Simulation analysis allows analyzing the effect of stocks, discount factors, marginal costs and expected increasing demand in the next periods and consumer surplus.