Benteng Zou (University of Luxembourg)
The global energy transition has intensified international dependence on a small set of countries fo critical minerals such as lithium, cobalt, and rare earth elements. This paper develops a dynamic game of strategic interaction between a resource-exporting country and a resource-importing country to study how supply concentration, recycling, and substitution shape international market outcomes. The importer invests in recycling and backstop substitution technologies, while the exporter optimally manages extraction and supply. We characterize Markov-perfect equilibria featuring endogenous regime switching across four market structures: exclusive reliance on virgin extraction, recycling readiness, substitution readiness, and coexistence of both technologies. Mineral criticality—captured by a minimum demand constraint—governs the intensity of strategic competition. Low criticality induces aggressive supply restrictions and delayed innovation, whereas high criticality leads to earlier substitution and greater supply to preserve market share. Using impulse-control methods, we derive tractable switching conditions and show that recycling can generate multiple equilibria. Our results highlight how technological responses to supply insecurity reshape international market power, with implications for trade policy, export controls, and the resilience of clean-energy supply chains.