Cournot Competition, Forward Markets and Efficiency

Allaz, Blaise; Vila, Jean-Luc

doi:10.1006/jeth.1993.1001

Cited by 519 publications

(582 citation statements)

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“…Modeled here is an imperfect forward market, i.e., only a small number of prequalified sellers can participate in this market, while there are outside sellers who are precluded from participating in the contract market, although they can participate in the spot market. As Allaz and Vila (1993) point out, the standard literature in financial economics is not realistic in its assumption of perfect forward markets. Especially in capital-intensive industries (e.g., Wilson 2002), there are many factors that call for a restricted contractor base.…”

Section: Summary and Discussionmentioning

confidence: 99%

“…In such a setting, the results of Allaz and Vila (1993) and Mendelson and Tunca (2004a, b) suggest that sellers would be worse off by establishing a B2B exchange to facilitate their contracting and spot sales. This remains a conjecture, as the closedmarket, multiseller case with options and heterogeneous costs remains "open.…”

Section: Summary and Discussionmentioning

confidence: 99%

“…In economics, work on diverse technologies, e.g., Crew and Kleindorfer (1976), characterizes efficient production decisions and technology mixes under competition and price uncertainty, but this work does not consider contract and spot market interactions. In industrial organization, previous work on forward-spot integration, e.g., Allaz and Vila (1993) neglects either capacity constraints, spot price uncertainty, options, or heterogeneous technologies. Thus, these previous contributions from various fields are all incomplete in terms of modeling the interaction between capacity, contracting, and output decisions.…”

Section: Literature Reviewmentioning

confidence: 99%

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Competitive Options, Supply Contracting, and Electronic Markets

2005

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T his paper develops a framework for analyzing business-to-business (B2B) transactions and supply chain management based on integrating contract procurement markets with spot markets using capacity options and forwards. The framework is motivated by the emergence of B2B exchanges in several industrial sectors to facilitate such integrated contract and spot procurement. In the framework developed, a buyer and multiple sellers may either contract for delivery in advance (the "contracting" option) or they may buy and sell some or all of their input/output in a spot market. Contract pricing involves both a reservation fee per unit of capacity and an execution fee per unit of output if capacity is called. The key question addressed is the structure of the optimal portfolios of contracting and spot market transactions for the buyer and these sellers, and the pricing thereof in market equilibrium. Existence and structure of market equilibria are characterized for the associated competitive game between sellers with heterogeneous technologies, under the assumption that they know the buyer's demand function. This allows an explicit characterization of the price of capacity options and the value of managerial flexibility, as well as providing conditions under which B2B exchanges are efficient and sustainable.

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Section: Summary and Discussionmentioning

confidence: 99%

Section: Summary and Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Competitive Options, Supply Contracting, and Electronic Markets

2005

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“…It means that, contrary to results frequently observed in the literature, there is a possible situation where forward contracts, instead of reducing the spot market power, can be, in fact, affected by it (since P C is potentially affected by market power). For example, Allaz and Villa (1993), Newbery (1998), Green (1999) and Bushnell (2007) observe the importance of existing forward contracts to reduce market power. This exercise shows that if the market becomes less concentrated the forward curve can be shifted or rotated.…”

Section: Dynamics and Forward Pricesmentioning

confidence: 99%

Can market power in the electricity spot market translate into market power in the hedge market?

Bragança

Daglish

2016

Energy Economics

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Electricity is a non-storable commodity frequently traded in complex markets characterized by oligopolistic structures and uniform-price auctions. These particularities confer to electricity prices idiosyncratic patterns not addressed by the usual commodity pricing literature. This paper allows for oligopoly, vertical integration and uniform-price auction and derives a linear equilibrium relationship between spot prices and state variables affecting firms' costs and demand under usual functional simplifications. It applies a two-factor forward pricing model over the equilibrium spot price process, and shows that forward prices can be positively affected by spot market power. Thus, hedge prices may be affected by market power as it appears in the spot market.

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“…This ability to a¤ect prices, and hence, to manipulate the outcome of bets places restrictions on its stakes. 1 There are a number of important commodity markets in which there are only a few participants with signi…cant market power, who are also active in the futures market associated with that commodity. Notable examples of such commodities include electricity, natural gas, crude oil and grains (see Newbery (1984), Dong and Liu (2005), Haigh, Hranaiova and Overdahl (2005)).…”

Section: Introductionmentioning

confidence: 99%

Optimal speculative trade among large traders

Eliaz

Spiegler

2008

Rev. Econ. Design

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A collection of large traders holds heterogeneous prior beliefs regarding market fundamentals. This gives them a motive to engage in speculative trade with respect to market prices. Rather than assuming a particular institution or market for speculative trade, we take a mechanism-design approach by attempting to characterize the mechanism that maximizes the traders'gains from speculative trade, subject to the incentive constraints that result from the traders'ability to manipulate market prices. Within a stylized market model, we show that this mechanism a¤ects price volatility without destroying ex-post e¢ cient allocations. We also characterize the implementability of optimal speculative trade when the traders'prior beliefs are private information.

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Cournot Competition, Forward Markets and Efficiency

Cited by 519 publications

References 0 publications

Competitive Options, Supply Contracting, and Electronic Markets

Competitive Options, Supply Contracting, and Electronic Markets

Can market power in the electricity spot market translate into market power in the hedge market?

Optimal speculative trade among large traders

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