Nonlinear Supply Dynamics and Strategic Extraction in the Critical Mineral Market

Behnaz Minooei Fard

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: Critical mineral markets over the past decade have exhibited distinctive patterns of nonlinear price adjustment, discontinuous supply responses, and regime dependent behavior. This paper develops a dynamic game theoretical model of strategic extraction in critical mineral markets under a nonlinear supply function. Replacing the linear market reactions standard in the exhaustible resource literature with a partially inverse supply function generates three distinct price-quantity equilibria. Each equilibrium corresponds to a qualitatively different market regime as a constrained low-extraction/high-price state reflecting Chinese supply dominance, an intermediate state of partial Rest of the World (ROW) entry, and a high-extraction/low-price state of full supply diversification. The model is solved using Model Predictive Control (MPC), which parameterizes the degree of strategic foresight. Three scenarios are simulated to assess the effects of policy interventions on extraction dynamics, profitability, and resource depletion. The results show that reducing ROW marginal costs is necessary but not by itself sufficient for supply diversification. Moreover, the results reveal that cost subsidies and support payments have limited impact on depletion speed unless accompanied by a change in market behavior from short-termism to extended decision horizons.

Keywords: Critical minerals; game theory; nonlinear supply function; multiple equilibria; Model Predictive Control; export controls; price jumps; strategic extraction (search for similar items in EconPapers)
JEL-codes: C61 C7 Q3 (search for similar items in EconPapers)
Pages: 32
Date: 2026-06-19
New Economics Papers: this item is included in nep-gth
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