Forest-Based Industrial Network

Following the literature on automation, we model the industrial network of the forest based sector, with random demands, in presence of supply contracts. The economic network is composed of upstream, instream and downstream agents. Through the resolution of the variational inequality model, we investigate the network equilibrium flows and attempt to compute the prices at which the former could be attained. With respect to other results on optimal pricing of timber and wood products in France, the model outputs show that the forest resources may be overvalued by the market, while the manufactured products may be undervalued. The analysis in a dynamic setting corroborates these results. In case of network disequilibrium, the expected profits switch from increasing monotonic s-shaped functional forms to non-monotonic bell-shaped functional forms. Finally, we explicit the equilibrium conditions in case of vertical integration between the upstream and instream agents.