Measuring oligopsony power with shadow prices: US markets for pulpwood and sawlogs

Empirical estimation of input market power is hindered by problems in measuring an input's value of marginal product (VMP). By estimating a variable profit function system, however, one can infer a factor's VMP through its shadow price. This technique is used here to specify a structural equation system, which is estimated using time series data for the US sawmilling and paper industries, to empirically measure the degree of oligosony power for sawlog and pulpwood inputs respectively. Results evaluated at sample means indicate that pulpwood markets are more oligopsonistic than sawlog markets, though both perform closer to perfect competition than monopsony. Time trends for market power differ for each product and perfect competition cannot be rejected for sawlogs in later years. -Author

Duke Scholars

Author Brian Murray Environmental Sciences and Policy