University of Chicago
Department of Economics
1126 E. 59th St.
Chicago, IL 60637
mtomarel@uchicago.edu
This paper uses a natural experiment in the municipal solid waste industry to empirically measure the effect of market structure on prices. The 1993 Resource Conservation and Recovery Act Subtitle D amendments mandated that all active municipal solid waste landfills make costly technological improvements or exit. I assemble a data set of Illinois landfills and show that more than half of the active landfills chose to exit rather than make the necessary technological improvements. As compared to firms who made the technological improvements (survivors), exiting firms were smaller, older, more likely to be located in areas with high land prices, and less intensive in their operations as defined by a constructed measure of capacity usage. Using the change in market structure due to the regulation, I estimate the causal effect of spatial competition on prices among surviving landfills. I find that a one percent increase in the distance between landfills causes a 0.37 percent increase in price. In total, producer prices rose by 11 percent due to increased market power. This represents an increase in aggregate revenue of 51 million dollars for Illinois landfill owners, although the implied impact on per capita expenditure is small: consumers pay an additional $3.96 per year for garbage disposal due to the increase in spatial differentiation among landfills. In addition to estimating the effect of market structure on prices, I also present evidence that the Subtitle D amendments have caused a shift in the municipal solid waste landfill industry, creating an equilibrium with fewer producers but a higher average productivity and less productivity dispersion, both due to the exit of less productive landfills.
