Rare Earth Supply Chains: Predatory Pricing for Strategic Dominance

EMPCT Working Paper Series No. 2026-07
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Citation
Choi, Jaedo, Nitya Pandalai-Nayar, and Hiroshi Toma, “Rare Earth Supply Chains: Predatory Pricing for Strategic Dominance”, September 2026.

Abstract
Rare earth elements are critical inputs for high-technology industries, yet their global
supply chain, particularly in the processing stage, is dominated by China. We develop a
quantifiable multi-country general equilibrium model with three vertically linked sectors:
mining, refining, and advanced manufacturing. In this model, a vertically integrated
incumbent refining firm deters entry through strategic overproduction, endogenously
determining market structure in the refining sector. Calibrating the model to match key
moments in global rare earth trade and using novel rare earth pricing data, we show that
low input substitutability gives China strategic power. Counterfactual analysis evaluates
the welfare effects of Western entry subsidies, the 2011 Chinese export restrictions, and
supply chain diversification policies.