Academic journal article Journal of Agricultural and Applied Economics

Oligopsony/Oligopoly Power and Factor Market Performance: The Case of U.S. Old Newspapers

Academic journal article Journal of Agricultural and Applied Economics

Oligopsony/Oligopoly Power and Factor Market Performance: The Case of U.S. Old Newspapers

Article excerpt

This paper derives price-cost margins for the old newspaper (ONP) input market for newsprint manufacture and then examines the effects of two government policies and two variables measuring the market performances of ONP input and newsprint output on the oligopsonist's ONP price-cost margins. In the wastepaper recycling market in particular, the ONP input market has not been successful in using the ONP generated. The outcomes of the study are that various degrees of price distortions existed in the ONP input markets in four regions of the United States during 1972-1995. Demand-side policy had a positive effect and supply-side policy had a negative effect on ONP price-cost margins in all regions.

Key Words: buyer and seller market shares, mandated recycling programs, minimum content standards, oligopsony

JEL Classifications: R51, R58, 021, 023, R11, R38

The increasing volume of municipal solid waste (MSW) disposal and limited landfill availability for disposal purposes in the late 1980s and early 1990s raised concerns for the future of landfill space as the number of landfills in operation in the United States declined by almost 75% between 1963 and 1993 (Hervani). As a result of higher costs associated with landfill disposal fees, land filling became less economical. A lack of landfill availability necessitated reducing the volume of the waste stream by source reduction or recycling. Underutilization of old newspaper (ONP) is important because ONP is the second largest component of wastepaper and it makes up 14% of total waste in MSW. The best disposal option for ONP seems to be recycling, and the highest value within recycling is in the manufacture of newsprint.

Two state government policies in several specific states were implemented to increase ONP utilization: the mandatory recycling programs (a supply-side policy) and minimum content standards (a demand-side policy). The supply-side policy would help increase ONP recovery rates, and demand-side policy would help encourage ONP utilisation rate among newsprint mills. The government-mandated recycling program was enacted in 1987 in the state of Vermont, and the minimum content standards were enacted in 1989 in the state of California; in the following years, several other states took similar measures to help boost their recycling programs and solve the lack of landfill availability. Table 1 shows the states and years that demand- and supply-sides policies were enacted.

The existence of an oligopolistic market power in newsprint output might allow the exploitation of ONP by input buyers. The inter-dependence between oligopolistic and (possible) oligopsonistic market structure and market imperfections could affect the effectiveness of government policies dealing with the ONP market. The market demand for ONP has been limited, hampering the success of collection efforts and recycling programs. The limited demand for ONP might be due to the structure of the ONP market. Three market observations indicate the possible existence of oligopsonistic elements in the ONP market: (1) the existence of barriers to entry; (2) relatively few buyers and many sellers; and (3) historically large price variations.

The three problems might be linked to an imperfect market structure of ONP. First, the lack of de-inking capacity to utilize ONP can stem from the high capital cost of entry into the de-inking market (Booth et al.; Nestor). Second, there are few large buyers and many sellers of ONP, and the fewness of buyers (oligopolies in the output market) results in market power (Galbraith). Third, widely fluctuating input prices can be an outcome of an imperfect market structure in which sudden changes in quantity of input demanded by large potential buyers can have a great effect on prices. The ONP input prices have fluctuated widely over U.S. regions between the years 1972 and 1995, with wider swings in the 1989-1995 period (Hervani).

This study investigated the possible existence of imperfect market structures in the ONP input market among newsprint mills and further examined the effect of two government policies and two market performance variables on ONP price distortions. …

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