Examination of North American softwood lumber species substitution using discrete choice preferences and disaggregated end-use markets

Abstract

Over the past 20 years, four significant and contentious softwood lumber trade disputes have taken place between the United States and Canada. The US International Trade Commission (USITC), relying on aggregate market assessments using elasticity of demand estimation and cointegration methods, has ruled that all North American softwood lumber species are perfectly fungible. The objective of this study is to disaggregate the US softwood lumber market by estimating cross-price elasticity of demand for North American softwood lumber species and species groups in three major end-use markets (floor framing, roof framing, and wall framing products) using a discrete choice preference model. Specifically, this study utilizes a choice-based conjoint model to estimate species and species group preferences, market shares, and price-demand relationships for North American softwood lumber. Research results are compared with published aggregate market cross-price elasticity of demand estimates, such as those relied upon by USITC, to determine whether North American softwood lumber species and species groups are perfectly fungible in the three largest softwood lumber end-use markets. Results demonstrate that distinct differences exist in the substitutability between North American species and species groups of softwood lumber. The results provide notable implications in future USITC trade analyses of the US–Canadian softwood lumber trade issue.