Abstract
We examine the strategic interplay between the extraction of a virgin resource and the recycling of this resource. For this, we analyze a two-period model that covers the whole spectrum of market power in the two sectors of extraction and recycling, assuming they are independent. The choice of prior extraction creates potential future competition between the two sectors. We show that prior extraction is designed in a way that either accommodates, ignores or deters recycling. The general insight is the following. While recycling increases the socially e¢ cient level of prior extraction, the possibility of recycling makes the extraction sector too parsimonious in setting the level of prior extraction whether the strategic motive is to soften competition with recycling or to discourage recycling.