Forward Markets and Signals of Quality
AbstractWe analyze how information about quality may be conveyed via forward trading. A privately informed monopolist has the opportunity to make forward sales. Speculators and consumers, participating in the forward and the spot markets respectively, observe the monopolist's decisions in these markets. We show that forward trading may emerge in equilibrium although the monopolist has neither insurance nor hedging incentives. Indeed, the high-quality monopolist uses forward trading to reduce the cost of signalling quality through spot prices. We conclude that forward trading indirectly contributes to signal quality more efficiently in the spot market. Copyright 2003 by the RAND Corporation.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 34 (2003)
Issue (Month): 3 (Autumn)
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- Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
- Dubois, Pierre & Nauges, Celine, 2007.
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37320, American Association of Wine Economists.
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- Manfredo, Mark R. & Sanders, Dwight R., 2008. "Price discovery in a private cash forward market for lumber," Journal of Forest Economics, Elsevier, vol. 14(1), pages 73-89, January.
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