Perfect assumptions in an imperfect world: Managing timberland in an oligopoly market

Abstract

We built a game-theoretic supply model where forest landowners respond to each other's decisions using two market assumptions: (i) Perfect cartel, (ii) Cournot competition (simultaneous moves) and (iii) Stackelberg competition (sequential moves). Our findings indicate that the initial forest structure is instrumental in determining forest composition outcomes among suppliers. The solutions in the Cournot model, landowners with the same initial forest structure have uniform outcomes with increased variation in financial performance arising with different initial endowments of pulpwood and sawtimber and establishment costs. Alternatively, Stackelberg leadership has profound financial benefits to leaders even under similar initial conditions, that remain regardless of scenario. However, while terminal overall forest composition was similar regardless of scenario under Cournot outcomes, the same is not true under Stackelberg. We find that Stackelberg outcomes led to the follower being unable to harvest younger age classes over time, which resulted in accumulation of older age class stands. Our results elucidate the importance of diversification and policies that reduce landownership land concentration.