Exclusion Through Speculation

Argenton, Cédric; Willems, Bert

doi:10.2139/ssrn.1651112

“…Murphy and Smeers (2010) show that the impact of forward contracts on competition is ambiguous once investment decisions are endogenized. In Argenton and Willems (2010) rms sell standard forward contracts to exclude potentially more ecient entrants, and Petropoulos et al (2010) show that nancial contracts might lead to preemptive overinvestments by incumbent rms.…”

mentioning

confidence: 99%

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

Holmberg

¹

,

Willems

²

2011

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We demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers _rst choose a portfolio of call options and then compete with supply functions. In equilibrium _rms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their markups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

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“…Murphy and Smeers (2010) show that the impact of forward contracts on competition is ambiguous once investment decisions are endogenized. In Argenton and Willems (2010) rms sell standard forward contracts to exclude potentially more e cient entrants, and Petropoulos et al (2010) show that nancial contracts might lead to preemptive overinvestments by incumbent rms. 6 shock distribution, so that the spot market has a unique equilibrium.…”

Section: Literature Reviewmentioning

confidence: 99%

Relaxing competition through speculation: Committing to a negative supply slope

Holmberg

¹

,

Willems

²

2015

Journal of Economic Theory

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers rst choose a portfolio of call options and then compete with supply functions. In equilibrium rms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

show abstract

“…Murphy and Smeers (2010) show that the impact of forward contracts on competition is ambiguous once investment decisions are endogenized. In Argenton and Willems (2010) rms sell standard forward contracts to exclude potentially more ecient entrants, and Petropoulos et al (2010) show that nancial contracts might lead to preemptive overinvestments by incumbent rms. 6 shock distribution, so that the spot market has a unique equilibrium.…”

mentioning

confidence: 99%

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

Holmberg

¹

,

Willems

²

2012

Self Cite

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers rst choose a portfolio of call options and then compete with supply functions. In equilibrium rms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

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Exclusion Through Speculation

Cited by 3 publications

References 60 publications

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

Relaxing competition through speculation: Committing to a negative supply slope

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

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