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Monopoly behaviour with speculative storage

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Author Info
Mitraille, Sébastien
Thille, Henry

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Abstract

We analyze the effects of competitive storage when the production of the good is controlled by a monopolist. The existence of competitive storers serves to reduce the monopolist's effective demand when speculators are selling and to increase it when they are buying. This results in the monopolist manipulating the frequency of stockouts, and hence the price-smoothing effects of competitive storage. We find that competitive storage affects both the level and the volatility of price under monopoly. The average price level is higher with storage due to the monopolist's desire to induce stockouts by occasionally keeping the price just at the level that induces a stockout. Although storage does reduce the volatility of prices under monopoly production, prices are more volatile than they would be under perfectly competitive production, even though stockouts occur less frequently under monopoly. These results are demonstrated through closed-form solutions of the two-period version of the model and computational solutions to the infinite horizon version of the model.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 7 (July)
Pages: 1451-1468
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Handle: RePEc:eee:dyncon:v:33:y:2009:i:7:p:1451-1468

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Keywords: Inventories Monopoly Speculation Price distribution;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McLaren, John, 1999. "Speculation on Primary Commodities: The Effects of Restricted Entry," Review of Economic Studies, Blackwell Publishing, vol. 66(4), pages 853-71, October. [Downloadable!] (restricted)
  2. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Newbery, David M, 1984. "Commodity Price Stabilization in Imperfect or Cartelized Markets," Econometrica, Econometric Society, vol. 52(3), pages 563-78, May. [Downloadable!] (restricted)
  4. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October. [Downloadable!] (restricted)
  5. Scheinkman, Jose A & Schechtman, Jack, 1983. "A Simple Competitive Model with Production and Storage," Review of Economic Studies, Blackwell Publishing, vol. 50(3), pages 427-41, July. [Downloadable!] (restricted)
  6. Anderson, Ronald W & Gilbert, Christopher L, 1988. "Commodity Agreements and Commodity Markets: Lessons from Tin," Economic Journal, Royal Economic Society, vol. 98(389), pages 1-15, March.
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This page was last updated on 2009-12-5.

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