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Mixed strategy game theory, application in forest industry

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  • Limaei, Soleiman Mohammadi

Abstract

Two large paper mills dominate the forest industry in northern Iran. Forest companies and local farmers sell pulpwood to these mills. The real pulpwood price data was collected from two paper mills in the northern part of Iran. These mills buy most pulpwood in this area. Game theory has been used in order to investigate the market structure in this region. Game theory is the study of interacting decision makers. Game theory has been widely used in economics. Most economic behaviour can be viewed as a special case of game theory. A game model includes a set of players, a set of strategies and a set of payoffs. This study focuses on the theory of dynamic duopsony games. When pulpwood is sold, the different mills use mixed strategies to give sealed bids. In each transaction, each mill (player) has two different possible strategies (decisions): a high (H) or a low (L) prices. Which price should you set? What is the optimal price of the other player? Here the situation is a noncooperative game. Nash equilibrium and dynamic properties of the system are determined. Each mill continuously observes the frequencies of the other mills action. The expected marginal profits are calculated based on this information. In case the marginal profit of mill A is strictly positive (zero or strictly negative), mill A increases (leaves unchanged, decreases) bids. In case the marginal profit of mill B is strictly positive (zero or strictly negative), mill B increases (leaves unchanged, decreases) bids. It is found that the decision probability combination of the different mills follow a special form of attractor and that centers should be expected to appear in unconstrained games.

Suggested Citation

  • Limaei, Soleiman Mohammadi, 2010. "Mixed strategy game theory, application in forest industry," Forest Policy and Economics, Elsevier, vol. 12(7), pages 527-531, September.
    • Handle: RePEc:eee:forpol:v:12:y:2010:i:7:p:527-531
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    References listed on IDEAS

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    1. Limaei, Soleiman Mohammadi & Lohmander, Peter, 8. "A game theory approach to the Iranian forest industry raw material market," Scandinavian Forest Economics: Proceedings of the Biennial Meeting of the Scandinavian Society of Forest Economics, Scandinavian Society of Forest Economics, issue 41, May.
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    4. Flam, Sjur Didrik, 1996. "Approaches to economic equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1505-1522.
    5. Shahi, Chander & Kant, Shashi, 2007. "An evolutionary game-theoretic approach to the strategies of community members under Joint Forest Management regime," Forest Policy and Economics, Elsevier, vol. 9(7), pages 763-775, April.
    6. Sjur Didrik Flåm, 2002. "Convexity, Differential Equations, and Games," CESifo Working Paper Series 655, CESifo.
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    Cited by:

    1. Soleiman MOHAMMADI LIMAEI & Peter LOHMANDER & Leif OLSSON, 2017. "Dynamic growth models for continuous cover multi-species forestry in Iranian Caspian forests," Journal of Forest Science, Czech Academy of Agricultural Sciences, vol. 63(11), pages 519-529.
    2. Mehdi Zandebasiri & José António Filipe & Javad Soosani & Mehdi Pourhashemi & Luca Salvati & Mário Nuno Mata & Pedro Neves Mata, 2020. "An Incomplete Information Static Game Evaluating Community-Based Forest Management in Zagros, Iran," Sustainability, MDPI, vol. 12(5), pages 1-14, February.
    3. Moradi, Sohrab & Limaei, Soleiman Mohammadi, 2018. "Multi-objective game theory model and fuzzy programing approach for sustainable watershed management," Land Use Policy, Elsevier, vol. 71(C), pages 363-371.
    4. Soltani, Arezoo & Sankhayan, Prem Lall & Hofstad, Ole, 2016. "Playing forest governance games: State-village conflict in Iran," Forest Policy and Economics, Elsevier, vol. 73(C), pages 251-261.

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