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Speculation on Primary Commodities: The Effects of Restricted Entry

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  • McLaren, John

Abstract

We present a model of oligopolistic commodity speculation, in which a limited number of speculators practice non-cooperative storage in an infinite-horizon game. A significant technical difficulty due to the non-negative stock constraint is overcome, and a tractable sub-game perfect equilibrium is presented, in which it is shown that less is stored and prices are more volatile than under perfect competition. It turns out that a tax on consumption of the good would increase storage, stabilize prices, increase welfare and raise speculative profits; the oligopolists would thus lobby for a tariff raised against their own shipments. Copyright 1999 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 66 (1999)
Issue (Month): 4 (October)
Pages: 853-71

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Handle: RePEc:bla:restud:v:66:y:1999:i:4:p:853-71

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Cited by:
  1. Jean-Paul Chavas, 2008. "On Storage Behavior Under Imperfect Competition, with Application to the American Cheese Market," Review of Industrial Organization, Springer, vol. 33(4), pages 325-339, December.
  2. Singer, Marcos & Donoso, Patricio, 2008. "Upstream or downstream in the value chain?," Journal of Business Research, Elsevier, vol. 61(6), pages 669-677, June.
  3. Sebastien Mitraille & Henry Thille, 2008. "Monopoly Behaviour with Speculative Storage," Working Papers 0804, University of Guelph, Department of Economics and Finance.
  4. Bask, Mikael & Widerberg, Anna, 2008. "Market Structure and the Stability and Volatility of Electricity Prices," Working Papers in Economics 327, University of Gothenburg, Department of Economics.
  5. Kornher, Lukas & Kalkuhl, Matthias, 0. "Food Price Volatility in Developing Countries and its Determinants," Quarterly Journal of International Agriculture, Humboldt-Universit├Ąt zu Berlin, vol. 52.

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