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An Empirical Model of Capacity Expansion and Pricing in an Oligopoly with Barometric Price Leadership: A Case Study of the Newsprint Industry in North America

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  • Booth, D L, et al

Abstract

The weak form of oligopolistic coordination in pricing and capacity expansion of the North American newsprint industry is examined. A dynamic model consisting of demand, price, and regional capacity equations is estimated for the years 1965 to 1986. The reference price in the industry is hypothesized to be based on either adjusted full-cost pricing or mark-up over marginal cost pricing. Neither hypothesis was rejected, confirming that either pricing rule better describes industry practices than marginal cost pricing. The determinant of mark-up levels was the industry operating rate. The model also showed that capacity expansion was negatively related to the concentration ratio. Coauthors are V. Kanetkar, I. Vertinsky, and D. Whistler. Copyright 1991 by Blackwell Publishing Ltd.

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  • Booth, D L, et al, 1991. "An Empirical Model of Capacity Expansion and Pricing in an Oligopoly with Barometric Price Leadership: A Case Study of the Newsprint Industry in North America," Journal of Industrial Economics, Wiley Blackwell, vol. 39(3), pages 255-276, March.
  • Handle: RePEc:bla:jindec:v:39:y:1991:i:3:p:255-76
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    Cited by:

    1. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2008. "Lumpy Capacity Investment and Disinvestment Dynamics," CEPR Discussion Papers 6788, C.E.P.R. Discussion Papers.
    2. Lapo Filistrucchi, 2005. "The Impact of Internet on the Market for Daily Newspapers in Italy," Economics Working Papers ECO2005/12, European University Institute.
    3. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2010. "On the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 383-389, July.
    4. Ulrich Doraszelski & Mark Satterthwaite & Lauren Xiaoyuan Lu & David Besanko, 2009. "Lumpy Capacity Investment and Disinvestment Dynamics," 2009 Meeting Papers 106, Society for Economic Dynamics.
    5. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. Marshall, Robert C. & Marx, Leslie M. & Raiff, Matthew E., 2008. "Cartel price announcements: The vitamins industry," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 762-802, May.
    7. Andrew Wood, 2005. "Investment interdependence and the coordination of lumpy investments: evidence from the British brick industry," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 37-49.
    8. Li, Haizheng & Luo, Jifeng, 2008. "Industry consolidation and price in the US linerboard industry," Journal of Forest Economics, Elsevier, vol. 14(2), pages 93-115, April.

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