"Wouldn’t a marginal mill become profitable in this situation? If the big boys are colluding and slowing production to inflate the price (like OPEC does), a small player could crank his mill up and turn a profit."

The stumpage you pay would preclude you making any profit with an out of date marginal mill. The mills buy the trees to log and manufactur the cost is called "stumpage." Then they hire the loggers and the truckers. You would have to get real lucky to make any money with a marginal mill. You might just as well buy a powerball ticket, you would have more chance with that than making money with a marginal mill. Bidding for stumpage does not lend itself to "collusion" it is a dog eat dog cutthroat process. Even large land holders like Potlatch Deltic sell their timber on the open market.
A side note; Hancock who manages timber lands for many large land holders has an operational philosophy of having one contractor go broke every month. If two go broke the margins are too tight if none go broke, Hancock isn't getting their full value of what they manage. that is how brutal the timber industry from stump to Home Depot is.