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Speculation on Primary Commodities: The Effects of Restricted Entry

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Author Info

  • McLaren, J.

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

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1992_37.

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Length: 35 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:clu:wpaper:1992_37

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Keywords: speculation ; commodities;

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Cited by:
  1. Bask, Mikael & Widerberg, Anna, 2009. "Market structure and the stability and volatility of electricity prices," Energy Economics, Elsevier, vol. 31(2), pages 278-288, March.
  2. Sebastien Mitraille & Henry Thille, 2008. "Monopoly Behaviour with Speculative Storage," Working Papers 0804, University of Guelph, Department of Economics and Finance.
  3. 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.
  4. Singer, Marcos & Donoso, Patricio, 2008. "Upstream or downstream in the value chain?," Journal of Business Research, Elsevier, vol. 61(6), pages 669-677, June.

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