Choice game of collection strategies in agricultural biomass supply market

Abstract

This study studies the difference among three collection strategies for agricultural biomass, i.e., commitment strategy, pure competition strategy and vertical integration strategy. Unlike existing research that is much reported research on qualitative analysis, this study use the method of mathematical analysis and further explain the interaction of the players and its impact on the benefits, which can be offered by game theory. The study of collection strategies for industrial buyers is of critical importance to realize the development potentials of agricultural biomass and its related industries. Firstly, the assumptions of biomass distribution, cost structure and market structure are applied to describe the agricultural biomass market, this lead to a monotonous increasing inverse demand function that is different from the past research. Secondly, commitment strategy, pure competition strategy and vertical integration strategy are modeled with game theory to explore equilibrium quantities and profits. Thirdly, equilibrium quantities and profits among the three collection strategies are compared to show the co-existence conditions of market structure and their differences. As a result, pure competition strategy is the most efficient strategy among the three; commitment strategy will bring the most aggregate biomass supply but is less efficient than pure competition strategy; vertical integration will bring secure biomass supply for integrated industrial buyer but it is at the sacrifice of aggregate profits of all decision makers, especially the profit of non-integrated industrial buyer. © 2013 Asian Network for Scientific Information.