Measuring Oligopsony Power with Shadow Prices: U.S. Markets for Pulpwood and Sawlogs

Brian Murray

The Review of Economics and Statistics, 1995, vol. 77, issue 3, 486-98

Abstract: Empirical estimation of input market power 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 U.S. sawmilling and paper industries, to empirically measure the degree of oligopsony 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. Copyright 1995 by MIT Press.

Date: 1995
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