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Exclusion Through Speculation

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  • Argenton, C.
  • Willems, Bert

    (Tilburg University, Center for Economic Research)

Abstract

Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use financial derivatives to extract rent from a potential entrant. The incumbent can indeed sell insurance to a large buyer to commit himself to compete aggressively in the spot market and drive the price down for the entrant. It can do so by selling derivatives for more than his expected production level, i.e. by taking a speculative position. This comes at the cost of inefficiently deterring entry.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-83.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:201083

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Web page: http://center.uvt.nl

Related research

Keywords: exclusion; monopolization; contracts; financial contracts; derivatives; risk aversion; speculation;

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References

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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.

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