Duopoly in exhaustible resource exploration and extraction

Strategic considerations of exploration and extraction are investigated in a two-player, two-period, two-stage perfect equilibrium framework. Relative to two "plant" monopoly, the duopolists explore more and extract more period by period. A mixed game in which there is cooperation "upstream" in exploration and Cournot competition "downstream" in quantities extracted is investigated. The authors also note that increasing returns to scale in exploration can introduce an unstable solution with a corner solution the presumed stable equilibrium.