Oligopsony elements in the recycled wastepaper market: Existence and implications.

Old newspaper (ONP) is the largest single component (14%) of total U.S. Municipal Solid Waste (MSW). The rising problems associated with disposal of MSW in landfills can be dealt with if the volume of the waste stream is reduced by recycling. The wastepaper recycling market, in particular ONP, has not been successful in utilizing the ONP generated. The existence of high sunk costs for entry into deinking market, along with the small numbers of buyers in the ONP market were identified as reasons that the ONP market had oligopsony elements. This research examined oligopsony in the ONP market and its impacts on ONP prices and deinking capacity. To examine the oligopsony elements, mill level production functions were estimated along with regional ONP supply functions and a national newsprint demand. Coefficients from these functions were used to estimate market power (oligopsony and oligopoly) impacts on ONP prices. The oligopsony impacts on ONP utilization rates were investigated by estimating deinking capacity level and entry equations. State government policies were implemented during the late 1980s and early 1990s to increase the ONP recovery and utilization rates: the mandated recycling programs and the minimum content standards. The impacts of these government policies on ONP supply, ONP demand, and oligopsony measures were also examined. The findings from the study confirm the existence of market power forces in the ONP market. Statistically significant impacts on ONP prices from the presence of oligopsonistic elements in ONP input markets were found in three regions of the U.S. Oligopsony measures had negative impacts on new entries into the deinking market and on deinking capacity levels of existing recycled newsprint mills. The amount of ONP utilized by deinking mills as a result of government policies was found to be lower than the amount of ONP generated by mandated recycling, therefore, leading to excess supply levels. Overall, government policies did not diminish the existence of market power in the ONP input market, particularly in the Northeast, South, and Western U.S. regions