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Price Margins and Capital Adjustment: Canadian Mill Products and Pulp and Paper Industries

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Abstract

The purpose of this paper is to estimate a model incorporating noncompetitive behaviour in product and factor markets, In addition, capital accumulation is subject to adjustment costs so that firms are not constrained to be in long-run equilibrium. The model is applied to two major Canadian manufacturing industries: pulp and paper and mill products. The results show for both industries in each of the three product markets and the wood input market that there is competitive behaviour. In addition, the industries are not in long-run equilibrium as marginal adjustment costs cause marginal profit to exceed the rental rate on capital. With the industries exhibiting short-run competitive behaviour in product and factor markets, new estimates are derived for scale economies and rates of technological change. Unlike the results from other studies, both industries exhibit small scale economies and positive rates of technological change.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 91-07.

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Length: 25 pages
Date of creation: 1991
Date of revision: Sep 1992
Publication status: Published: – revised version in International Journal of Industrial Organization, Vol. 10, No. 3 (September 1992), pp. 491–510
Handle: RePEc:car:carecp:91-07

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Keywords: margins; adjustment; pulp and paper;

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References

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  1. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  2. Bernstein, Jeffrey I & Nadiri, M Ishaq, 1989. "Research and Development and Intra-industry Spillovers: An Empirical Application of Dynamic Duality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(2), pages 249-67, April.
  3. Mohnen, Pierre A. & Nadiri, M. Ishaq & Prucha, Ingmar R., 1986. "R&D, production structure and rates of return in the U.S., Japanese and German manufacturing sectors: A non-separable dynamic factor demand model," European Economic Review, Elsevier, Elsevier, vol. 30(4), pages 749-771, August.
  4. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
  5. Catherine J. Morrison, 1989. "Unraveling the Productivity Growth Slowdown in the U.S., Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markup," NBER Working Papers 2993, National Bureau of Economic Research, Inc.
  6. Jeffrey I. Bernstein & Pierre Mohnen, 1991. "Price-Cost Margins, Exports and Productivity Growth: With an Application to Canadian Industries," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 24(3), pages 638-59, August.
  7. Epstein, Larry G. & Yatchew, Adonis J., 1985. "The empirical determination of technology and expectations : A simplified procedure," Journal of Econometrics, Elsevier, Elsevier, vol. 27(2), pages 235-258, February.
  8. Jorgenson, Dale W., 1986. "Econometric methods for modeling producer behavior," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 31, pages 1841-1915 Elsevier.
  9. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, Elsevier, vol. 16(3), pages 339-365, August.
  10. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  11. Geroski, Paul A, 1988. "In Pursuit of Monopoly Power: Recent Quantitative Work in Industrial Economics," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(2), pages 107-23, April.
  12. Epstein, Larry G., 1982. "Comparative dynamics in the adjustment-cost model of the firm," Journal of Economic Theory, Elsevier, Elsevier, vol. 27(1), pages 77-100, June.
  13. Treadway, Arthur B, 1971. "The Rational Multivariate Flexible Accelerator," Econometrica, Econometric Society, Econometric Society, vol. 39(5), pages 845-55, September.
  14. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 1066-79, December.
  15. Roberts, Mark J., 1984. "Testing oligopolistic behavior," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 2(4), pages 367-383, December.
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Cited by:
  1. Mei, Bin & Sun, Changyou, 2008. "Assessing Time-Varying Oligopoly and Oligopsony Power in the U.S. Paper Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 40(03), December.
  2. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2008. "Lumpy Capacity Investment and Disinvestment Dynamics," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6788, C.E.P.R. Discussion Papers.
  3. Elena Huergo, 1998. "Identificación del poder de mercado: estimaciones para la industria española," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 22(1), pages 69-91, January.
  4. Ulrich Doraszelski & Mark Satterthwaite & Lauren Xiaoyuan Lu & David Besanko, 2009. "Lumpy Capacity Investment and Disinvestment Dynamics," 2009 Meeting Papers, Society for Economic Dynamics 106, Society for Economic Dynamics.

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