Strategic competition in lithium mining and refining: A multi-stage game theoretic model

In this work, we develop and apply a model of global lithium production that captures strategic behavior across mining and refining stages. We integrate multiple types of game formulations into a bi-level framework and calibrate the resulting system using a mathematical program with equilibrium constraints (MPEC); in doing so, the model aligns closely with observed data despite sparse information, while enforcing game-theoretic equilibrium conditions. First, we show that the strategic game setup (e.g., Cournot vs. Stackelberg) can impact the ability of the MPEC to match observed data, particularly for fringe and follower actors. Next, we estimate the deadweight loss from market power across upstream and downstream stages. Results show that market structure significantly influences production levels, pricing, and the allocation of surplus, with the most pronounced effects observed in the relatively more concentrated downstream refining markets. Finally, we simulate the effects of exogenous entry to highlight how new supply at mining and refining stages could affect incumbent producers’ profits and demonstrate differences in each actor’s market exposure.