The Canadian Newsprint Industry: Econometric Models of Different Market Structures

The primary purpose of this report is to determine the type of market structure that best describes the Canadian newsprint industry. Accordingly, a set of models corresponding to a perfectly-competitive, dominant-firm and an "equal-partner cartel" industry structure are simulated. The procedure involves the estimation of a set of equations explaining various economic aspects of the industry. Different subsets of the equations are then employed as analogues for each market structure considered. These subgroups of equations are evaluated and compared by analyzing both intra- and extra-sample simulations. Exchange rate and GNP shocks are then used to compare the dynamics of some of the models. Unfortunately, the analysis does not reveal a universally superior model. While the competitive model seems to perform best over the estimation period, its forecasts are inferior to those of some of the imperfectly-competitive models. It would appear therefore, that further refinements in the model and equation specifications are required in order to resolve the market structure issue.