Working Paper: NBER ID: w3982
Authors: Jeffrey I. Bernstein
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.
Keywords: noncompetitive behavior; capital adjustment costs; Canadian industries; pulp and paper; mill products
JEL Codes: L13; L23; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| noncompetitive behavior in product markets (L13) | demand for factors (J23) |
| noncompetitive behavior in factor markets (L13) | product supply decisions (M11) |
| adjustment costs (J30) | inability to achieve equilibrium (D59) |
| noncompetitive pricing behavior (L11) | scale economies (F12) |
| noncompetitive pricing behavior (L11) | rates of technological change (O33) |
| capital adjustment costs (G31) | scale economies (F12) |
| capital adjustment costs (G31) | rates of technological change (O33) |