Strategic interaction between futures and spot markets

Ferreira, José Luis

doi:10.1016/s0022-0531(02)00012-1

“…Green (1999) Allaz and Vila (1993) also show that the perfectly competitive outcome is a subgame perfect Nash equilibrium if contracting is repeated an in nite number of rounds. However, Ferreira (2003) proves that this outcome is not renegotiation-proof, while the monopolistic outcome is. 10 Hortacsu and Puller, (2008), Sioshansi and Oren, (2007) and Wolak (2003) verify that large producers in the electricity market roughly bid as predicted by the SFE model.…”

Section: Literature Reviewmentioning

confidence: 91%

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.

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“…See Bushnell et al (2008), Fabra and Toro (2005), Hortacsu and Puller (2008), Kühn and Machado (2006), Mansur (2007), Wolak (2000) or Wolak (2007). 9 Green (1999), Newbery (1998) (Ferreira, 2003;Green and Le Coq, 2010;Liski and Montero, 2006), and tend to conclude that they have anti-competitive effects. 10 To be sure, the reasons why we recover the underpricing equilibria are similar to the ones that explain why the competitive outcome is not sustainable under Bertrand competition with capacity constraints, even though it constitutes the unique equilibrium outcome under pure Bertrand competition.…”

Section: Description Of the Modelmentioning

confidence: 99%

How to allocate forward contracts: The case of electricity markets

Frutos

¹

,

Fabra²

2012

European Economic Review

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a b s t r a c tSeveral regulatory authorities worldwide have imposed forward contract commitments on electricity producers as a way to mitigate their market power. In this paper we analyze the impact of such commitments on equilibrium outcomes in a model that reflects important institutional and structural features of electricity markets. We show that, when firms are asymmetric, the distribution of contracts among firms matters. In the case of a single dominant firm, the regulator can be confident that allocating contracts to that firm will be pro competitive. However, when asymmetries are less extreme, certain contract allocations might yield anti competitive outcomes by elim inating more competitive equilibria. Our analysis thus suggests that forward contracts should be allocated so as to (virtually) reduce asymmetries across firms.

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“…Indeed, Vives (2011) Allaz and Vila (1993) also show that the perfectly competitive outcome is a subgame perfect Nash equilibrium if contracting is repeated an innite number of rounds. However, Ferreira (2003) proves that this outcome is not renegotiation-proof, while the monopolistic outcome is. 10 Hortacsu and Puller, (2008), Sioshansi and Oren, (2007) and Wolak (2003) verify that large producers in the electricity market roughly bid as predicted by the SFE model.…”

mentioning

confidence: 91%

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

Holmberg

¹

,

Willems

²

2012

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.

show abstract

Strategic interaction between futures and spot markets

Cited by 34 publications

References 5 publications

Relaxing competition through speculation: Committing to a negative supply slope

Relaxing competition through speculation: Committing to a negative supply slope

How to allocate forward contracts: The case of electricity markets

Relaxing Competition Through Speculation: Committing to a Negative Supply Slope

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