Industry consolidation and price in the US linerboard industry

Starting from the 1980s, the US paper and paperboard industry has recorded an increasing degree of consolidation through mergers and acquisitions. This strategy, combined with voluntary downtime, is adopted by producers as a method to tackle excess capacity and to reduce costs in order to improve profitability. In this study, we investigate the impact of industry consolidation on price in the linerboard industry. We estimate a dynamic demand/supply system model that explicitly incorporates market structure. We find a low own-price elasticity of linerboard demand and an insignificant substitute effect of plastic containers. Additionally, linerboard price does not seem to respond to current demand and adjusts slowly across time. Moreover, industry-operating rate shows a positive, statistically significant, but small impact on price. Although those findings suggest an oligopoly market and some degree of barometric price leadership, market concentration shows no statistically significant effect on price. (c) 2007 Elsevier GmbH. All rights reserved.