Why is the Cost of Paper Increasing?

My printer (who prints my magazines) just notified me of an increase in paper costs. The increase is in the mid-single digits and by itself is not overwhelming. The problem is that this is the fourth increase this year. Even small increases can add up something significant over time.

It’s not my printer’s fault; they’re at the mercy of their suppliers — the paper mills. It’s my understanding that in the past few years, several mills have closed and others have switched to more profitable lines.

There are two plausible explanations. The first is that the mills may have been operating in a purely competitive environment. According to economic theory, a purely economic market can only exist for a short time, since competition will continue to push prices down until the weaker companies literally price themselves into bankruptcy and out of business. In that case, the industry is being “right-sized” and should soon stabilize.

The other explanation is that the paper industry anticipated a decrease in demand (with publications paring back their distribution or moving from printed form to electronic form). So they closed plants or switched to other products to avoid a glut of low-prices, slow-moving product. If this is the case, too many may have acted too quickly, resulting in a paper shortage.

Or perhaps it is a combination of both.

It may be intellectually stimulating to understand this, but that knowledge doesn’t help pay the bill!

What do you think? Please leave a comment!