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An economic study on forest resource competition: How market imperfections and increased competition affect woody feedstock markets
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Social Sciences.ORCID iD: 0000-0001-7303-7769
2018 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Forestry and forest industry sectors have vital roles in the economy, both on a national and regional level. Due to the significant role of these sectors on the economic system, it is important to understand how competition issues impact market outcomes. In this licentiate thesis, competition problems affecting woody feedstock markets have been examined from two different perspectives: (a) imperfect competition, and (b) increased competition. The overall purpose of the thesis is to analyze how these two different competition issues will influence woody feedstock markets; and hopefully the results can help to increase the general knowledge of the subject of competition.

To undertake this objective, three articles were written: (i) one review, (ii) one modeling, and (iii) one policy application; where the former examines imperfect competition, and the two latter, the implications of increased competition due to changing market conditions. The review article analyzed the competitive situation on forest product markets (i.e., roundwood markets). This was done by asking the general research question “What conclusions can be made from the research literature regarding the market characteristics for competitive forest product markets?” The study was motivated by the realization that the market condition may entail that forest product are subject to imperfect competition. A comprehensive article search was conducted using a number of different keywords on three different web-based search engines. The search was then expanded upon based on initial search results. The purpose of the first article was to review and assess the current state of knowledge relating to the competitive situation on forest product markets; and to increase the general understanding of how competition issues affect efficiency and allocation on forest product markets. In the second article, a regional partial equilibrium (PE) model was outlined and developed. The model, defined as the Norrbotten County Forest Sector Model (NCFSM), is comprised of three geographical regions in northern Sweden and Finland, and includes all the major forest industries in these regions and the iron- and steel industry (ISI) sector, a prospective wood user. The addition of the ISI sector represents a novelty in terms of modeling the value-chain of woody material in a Swedish context. Data for the NCFSM was collected from a combination of open sources, official national statistics, and personal correspondence with industry representatives. In the final article, the NCFSM was applied to assess how woody feedstock markets are affected by the introduction of the ISI sector to the marketplace. Three different market scenarios were formulated, and model output for each scenario was then compared to a business-as-usual baseline without the ISI sector.

The overall result of the thesis indicates that there are quite clear implications from either imperfect or increased competition on the market outcome. This result is not unexpected. However, to what degree these competition aspect currently or potentially influence feedstock markets are more ambiguous. The result of the review article is inconclusive. In the review it is suggested that this result may be due to regional rather than sectoral differences, and that the degree of market imperfection varies over time. It has been suggested that the exertion of market power will follow the general conjectures of the economy, meaning that imperfect competition outcomes are more prevalent during economic downturns. In the review it is also suggested that the size of the individual forest industry will influence market delineation, where an increased business activity will decrease the probability of an imperfect market outcome. That is, as the industrial operation becomes larger, the procurement of woody materials will become more important since the economic implications (i.e., losses) of running out of materials increase with production. Thus, larger forest industries come to be more occupied with acquiring woody materials, thereby maintain production and securing long-term profitability, then engaging in short-term profit maximization schemes. The results from the third article suggests that increased feedstock competition, caused by the introduction of the ISI sector, will raise feedstock prices. The welfare variable remained relatively unchanged over the three scenarios when compared to the baseline, though some regional welfare redistribution effects are observed. Prices for primary woody materials, i.e., sawlogs and pulpwood, will mainly experience small changes from increased competition. Secondary woody materials, i.e., harvesting residues and industrial woody by-products, will experience greater price shifts, up to 650%. This outcome leads to secondary woody materials being priced above pulpwood. Such a market outcome is highly improbable, since there are incentives for market actors to substitute the expensive commodities with a cheaper woody feedstock. The overall results can be interpreted as ii indicating the intrinsic conflict of increased demand for a finite resource that is already used; the improbability of the ISI sector substituting fossil fuels with biofuels; and the importance of inter-regional trade for optimal allocation of woody materials.

Place, publisher, year, edition, pages
Luleå: Luleå University of Technology, 2018.
Series
Licentiate thesis / Luleå University of Technology, ISSN 1402-1757
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:ltu:diva-68410ISBN: 978-91-7790-120-4 (print)ISBN: 978-91-7790-121-1 (electronic)OAI: oai:DiVA.org:ltu-68410DiVA, id: diva2:1198792
Presentation
2018-06-01, D770, Luleå tekniska universitet, Luleå, 13:00 (English)
Opponent
Supervisors
Available from: 2018-04-19 Created: 2018-04-18 Last updated: 2018-11-07Bibliographically approved

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Olofsson, Elias

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