Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Research Institute of Industrial Economics (IFN) Working Paper Series

No 937:
Relaxing Competition through Speculation: Committing to a Negative Supply Slope

Pär Holmberg () and Bert Willems

Abstract: We demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete with supply functions. In equilibrium firms 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.

Keywords: Supply function equilibrium; Option contracts; Strategic commitment; Speculation; (follow links to similar papers)

JEL-Codes: C73; D43; D44; G13; L13; L94; (follow links to similar papers)

32 pages, November 7, 2012

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

wp937.pdf    PDF-file
Download Statistics
This paper is published as:
Holmberg, Pär and Bert Willems, (2015), 'Relaxing Competition through Speculation: Committing to a Negative Supply Slope', Journal of Economic Theory, Vol. 159, pages 236-266

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:iuiwop:0937 This page was generated on 2016-10-11 23:33:15