Autori
Philips, Louis
Harstad, Ronald Morris

Titolo
Oligopolistic manipulation of spot markets and the timing of futures market speculation
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1990 - Fascicolo: 20 - Pagina iniziale: 1 - Pagina finale: 27

We consider the impact upon activity in a futures market for a natural resource of an oligopolistic market structure in the production of the resource for supply to the spot market. In our model, a futures market is open twice before a (single) maturity date, which coincides with the third period of spot market activity. Duopoly producers manipulate spot market prices at maturity so as to influence the value at maturity of futures contracts they hold (or have sold). Futures market activity results from differences in opinion about the underlying demand for the resource, in a game of inconsistent incomplete information. Given the inconsistent beliefs, a rational speculator predicts the extent of manipulation by producers. While the speculator has the option of closing out his futures position prior to maturity, and thereby not exposing himself to manipulation, in subgame-perfect equilibrium he chooses to hold open positions until maturity. Whenever players are not too risk-averse (relative to differences in beliefs), all futures trading occurs the first time the futures market is open. Net short positions at maturity are unaffected by the timing of trading, and are Pareto-efficient, due to using take-it-orleave-it contracts. Multiple prices of futures contracts coexist simultaneously in subgame-perfect equilibrium. Typically, some player simultaneously signs two futures contracts at different prices, not necessarily buying on one and selling on the other.



Testo completo: http://hdl.handle.net/1814/359

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