Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
956840 | Journal of Economic Theory | 2015 | 31 Pages |
Abstract
We demonstrate how commodity producers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, producers first choose a portfolio of call options and then compete in supply functions. In equilibrium, producers sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it is profitable because it reduces the elasticity of the residual demand of competitors who respond by increasing mark-ups.
Related Topics
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Economics and Econometrics
Authors
Pär Holmberg, Bert Willems,