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The Role Of Observability In Futures Markets

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  • José Luis Ferreira

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Abstract

Allaz and Vila (1993) show that oligopolistic industries may become more competitive if a futures market is added previous to the spot market. Later, Hughes and Kao (1997) show that this result occurs only if positions in the futures market are observed, and that without this condition the result is again the Cournot equilibrium. In this work we study different explicit formulations of observability and argue that the lack of it may induce a result very different from the one anticipated in Hughes and Kao (1997). By comparing the game forms of the different models, one can discuss about the suitability of either of them. In particular, the one we find most reasonable fit better some of the stylized facts of an industry like the power market in the U.K.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we015316.

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Date of creation: Oct 2001
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Handle: RePEc:cte:werepe:we015316

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  1. Hughes, John S. & Kao, Jennifer L., 1997. "Strategic forward contracting and observability," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 121-133, November.
  2. Ferreira, Jose Luis, 2003. "Strategic interaction between futures and spot markets," Journal of Economic Theory, Elsevier, vol. 108(1), pages 141-151, January.
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Cited by:
  1. Holmberg, P. & Willems, Bert, 2012. "Relaxing Competition through Speculation: Committing to a Negative Supply Slope," Discussion Paper 2012-088, Tilburg University, Center for Economic Research.
  2. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
  3. Miguel Vazquez & Michelle Hallac, 2014. "Analysis Of The Strategic Use Of Forward Contracting In Electricity Markets," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 129, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  4. Adilov, Nodir, 2012. "Strategic use of forward contracts and capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 164-173.

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