Measurement and Validation of Market Power in China’s Log Import Trade—Empirical Analysis Based on PTM Model and AIDS Model

Abstract

China is the world’s largest importer of logs, possessing the scale to exert significant influence in the international market. This paper uses a fixed-effect variable coefficient Pricing-to-Market panel model to measure China’s market power in log import trade. It also utilizes the Almost Ideal Demand System model from an elasticity perspective to explore the market behavior characteristics of various source countries in China’s log import trade, thereby validating the mechanism of market power. The results indicate that: ① China’s main trading partners can be categorized into four groups according to their market power in the log import trade. Specifically, China holds superlative market power in log imports from Indonesia, Malaysia, and Myanmar; holds strong market power in log imports from Russia, the Democratic Republic of the Congo, and Mozambique; holds weak market power in log imports from Papua New Guinea, Equatorial Guinea, France, Germany, Australia, and New Zealand; and holds no market power in Japan, Cameroon, and the United States. ② As China’s expenditure on log imports increases, there is a tendency to purchase high-quality precious wood and a greater concern for the legality of market transactions. Consequently, China is anticipated to augment its imports from source countries with no or weak market power. ③ The simple price elasticity of log imports from each source country is negative. Source countries with stronger market power tend to increase prices to achieve higher total revenue, while those with weaker market power are more inclined to lower prices to achieve the same. ④ Log products from various source countries are complementary in the Chinese market, indicating that China’s substantial demand for logs relies on the simultaneous supply from multiple countries and diverse wood types. Based on the existence or absence of market power in China’s log import trade, this paper provides targeted insights into enhancing international market power and reducing trade losses.