Leadership, Resilience, and Endowment in a Stackelberg Game Applied to the Andean Milk Market with Carbon Tokens

ADN@+
Jun 21
4 min read

Author: Roberto F. Salazar-Córdova

HEXAGON GROUP LatAm / UK–Global

June 21, 2025

Introduction

In complex market dynamics, especially under conditions of asymmetric capital and regulatory risk, classic pricing models fail to capture the full range of strategic variables.

This paper presents an expanded Stackelberg framework that incorporates two critical dimensions: resilience over time and depth of financial endowment, applied to the Andean dairy industry.

We focus on the case of El Ordeño, a certified BCorp and industry leader in Ecuador, currently under pressure from global competitors with larger financial reserves. In response, a partnership has been developed with the Red Santa Cruz Impact Investment Fund and the Federation of Indigenous Milk Producers, supported by the URKU Token, a blockchain-based financial instrument backed by carbon, water, and biodiversity assets.

Chapter 1a: Stackelberg Leadership with Strategic Time and Capital

The Stackelberg model, classically defined by a leader-follower sequence, is enriched here with two additional parameters:

: the resilience time, or how long a player can withstand a price war.
: the depth of pocket, or access to financial resources.

A player’s utility function becomes:

U_i = \int_0^{\theta_i} \left[P_i(t) - C_i\right] \cdot Q_i(t) \cdot e^{-rt} \, dt - \delta_i

Where:

: selling price at time ,
: cost of production,
: quantity sold,
: discount rate,
: the cost of financial endurance.

This formulation introduces time-based resilience and capital strategy into the leader’s position.

Chapter 1b: Oligopsony Competition for Strategic Inputs

In the milk industry, processors are buyers, not sellers, of a key input — raw milk. The competition takes the form of an oligopsony, where price competition shifts towards suppliers (farmers).

The quantity of milk acquired by each buyer is modeled as:

q_i = \frac{p_i^\alpha}{\sum_j p_j^\alpha} \cdot Q_T

Where:

: price offered by firm ,
: loyalty elasticity of producers,
: total milk supply available.

Here, offering higher prices helps, but building relationships, trust, and governance increases — the time a firm can remain attractive to suppliers during adverse conditions.

Chapter 1c: Application to the Milk Market – The Role of the Leader

In the Ecuadorian Andes:

El Ordeño acts as the ethical leader, grounded in sustainable practices.
It faces aggression from international firms with larger but low local legitimacy .
The Santa Cruz Network and its Hexagonal Dialogue methodology enhance via trust, legal legitimacy, and governance.
The URKU Token increases by mobilizing external impact investors.

The updated utility of El Ordeño is:

U_L = \int_0^{\theta + \Delta \theta} \left[P(t) - C - x\right] Q(t) e^{-rt} dt + \Delta \delta

Where:

: increase in procurement price due to competition,
: boost in resilience time due to local alliances,
: new capital flow from URKU and impact funds.

Chapter 2: The State as Buyer and the Risk of Regulatory Capture

The Ecuadorian government:

Sets the floor price for raw milk.
Purchases large volumes through social programs.

This creates a dual risk:

Price distortion, via political pressure from large challengers.
Arbitrage against the leader, weakening El Ordeño's resilience.

Strategic Response:

El Ordeño forms a consortium with the Kayambi and other highland producers.
Together they sell to both the State and global markets.
With URKU, the Santa Cruz Fund helps finance sustainability and legitimacy.
The Hexagonal Dialogue framework expands via social trust and legal grounding.

Chapter 3: 5-Year Scenario Simulation with and without URKU

Key Assumptions:

Milk purchase price: baseline USD 0.50/liter, rising to
Selling price (no URKU): USD 1.00 – 1.50/liter
Selling price (with URKU): USD 1.50 – 1.80/liter
1 URKU issued per 12 liters
URKU base price: USD 7.77, increasing by USD 2 per year
URKU yield to leader: 6% of gross (20% of 30%)
Volume: 60,000 liters/day
Planning horizon: 5 years
Discount rate: 8%

A. Without URKU:

Net margin per liter: USD 0.7586
5-year NPV: USD 83,068,332

B. With URKU:

Net margin per liter: USD 0.8044
5-year NPV: USD 88,079,951
Incremental gain: USD +5,011,619

Chapter 4: Strategic Role of URKU for Market Leadership

Despite its small direct financial margin (USD 0.0458/liter), URKU is transformational because:

70% of its revenue goes to territorial investment, reinforcing community support.
It expands resilience time and team loyalty.
It creates a narrative of legitimacy, aligning with SDG 16 (peace, justice, strong institutions).
It consolidates the ethical brand of El Ordeño and positions it globally.

The Hexagonal Dialogue legitimizes export actions, supports local producers, and connects impact investors with real-world outcomes.

Conclusion: Toward Peace and Sustainable Oligopoly

By including URKU:

All anchoring costs (USD 100,000/year) are covered.
The leader expands its resilience and market share.
It sustains a territorial consortium.
It challenges aggressive global entrants with legitimacy, not just liquidity.

This allows a peaceful transition from price war to strategic coexistence, not only in Ecuador but across the Andes. The market transforms into a sustainable oligopoly with local and global legitimacy.