Skip to main content
 

Job market paper

The Dynamic Effects of Recycling on Oligopoly Competition: Evidence from the US Paper Industry

When consumers recycle a good, the future supply of intermediate inputs increases. If some of the inputs are used to manufacture a good that competes with the original good, the initial seller faces an incentive to reduce its supply to limit this source of future competition. I illustrate the incentive in a model of dynamic oligopoly, and test the predictions using novel data from the US paper industry between 1973 and 1993. I find that firms decrease quantity in response to policy changes that increase both current and future competition from firms using the recycled input. I then use the model to illustrate two implications: (i) the response to strategic incentives lead antitrust authorities to underestimate the exercise of pre-merger market power, and horizontal mergers let firms internalize their effects on future competition, resulting in a greater supply reduction post-merger, and (ii) policies designed to shift production to environmentally friendly firms are undercut by countervailing supply incentives.

Fields

Industrial organization, Applied microeconomics, Environmental economics

Other papers

Collusive Pricing Patterns in the US Airline Industry Federico Ciliberto and Jonathan W. Williams (International Journal of Industrial Organization, Forthcoming)

Price Leadership and the Limit of Asymmetric Quantity Setting Games

Input Markets, Investment Incentives and Vertical Integration: Evidence from the US Paper Industry