Strategic Interactions between a Fossil Fuel Cartel and a Coalition of Buyers:a Dynamic Approach

In this paper, we study the environmental consequences of fossil fuel extraction. In our model, there is a cartel of fossil fuel suppliers and a coalition of fossil fuel buyers. The cartel maximizes her profits without taking into account the negative environmental externalities of her productions. However, since consumers are suffered by environmental emissions of fossil fuels, the coalition implements strategies to reduce emissions which in turn decline the fossil fuel consumption. In such a setting, there is a conflict of interests; therefore, the cartel and the coalition play a simultaneous strategic game to maximize their objective functions. An important result of the game is the existence of two different steady states. One with the resource exhausted and the other with positive reserves significantly far from zero.