Reference : The War of Rare Earth Elements: A Dynamic Game Approach
E-prints/Working papers : First made available on ORBilu
Business & economic sciences : Strategy & innovation
http://hdl.handle.net/10993/39982
The War of Rare Earth Elements: A Dynamic Game Approach
English
Bertinelli, Luisito[University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Poncin, Stéphane Louis Maxim[University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Zou, Benteng[University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
2019
No
[en] rare earth elements ; dynamic games ; open-loop strategic Nash equilibria
[en] Rare earth elements govern today’s high-tech world and are deemed to be essential for the attainment of sustainable development goals. Since the 1990s, these elements have been predominantly supplied by one single actor, China. However, due to the increasing global relevance of their availability, other countries are now encouraged to enter the market. The objective of this paper is to analyze the strategic interactions among (potential) suppliers. In particular, we are interested in (1) the optimal timing for a newcomer (e.g. the U.S.) to enter the market, (2) the incumbent’s (i.e. China’s) optimal behavior, and (3) the cost-efficiency of cooperative vs. competitive market relations. By setting up a continuous-time dynamic game model, we show that (1) the newcomer should postpone the production launch until its rare earth reserves coincide with those of the incumbent, (2) the incumbent should strive for a late
market entry and therefore keep its monopolistic resource extraction at the lowest possible level, (3) compared to the payoffs under competition, cooperation leads to a Pareto improvement when started at an early stage. The findings of our model are particularly relevant for the rational strategic positioning of the two great powers, America and China.
[University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
