Oligopsony, Vertical Integration, and Output Substitution: Welfare Effects in U.S. Pulpwood Markets

Oligopsonistic commodity markets can induce upstream vertical integration by the input demanders. The associated price distortion can also induce output substitution by the commodity's suppliers. These phenomena are considered in the context of pulpwood markets in the U.S. The estimated welfare effects of an oligopsony distortion indicate relatively small deadweight losses but considerable wealth transfers from open market producers to integrated pulpwood processing firms. Correcting the distortion would have little effect on aggregate output levels from the forest sector, but would alter the composition of output between industry and nonindustry sources.