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Cournot Competition, Financial Option markets and Efficiency

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  • Bert Willems

Abstract

Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of markets in a Cournot setting. This paper looks at the efficiency effect of financial options in a similar framework. It shows that also the existence of financial options makes markets more efficient; though to a smaller extent than futures. This is particularly relevant for markets with market power and costly storage, like the electricity market.

Suggested Citation

  • Bert Willems, 2004. "Cournot Competition, Financial Option markets and Efficiency," Working Papers of Department of Economics, Leuven ces0414, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces0414
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    Cited by:

    1. Weigt, H. & Willems, Bert, 2011. "The Effect of Divestitures in the German Electricity Market," Other publications TiSEM 7bbea5b0-7489-416f-8767-d, Tilburg University, School of Economics and Management.
    2. Rupp, Thomas, 2006. "Rational actors in balancing markets: a game-theoretic model and results," Darmstadt Discussion Papers in Economics 171, Darmstadt University of Technology, Department of Law and Economics.
    3. Roland Meyer, 2012. "Economies of scope in electricity supply and the costs of vertical separation for different unbundling scenarios," Journal of Regulatory Economics, Springer, vol. 42(1), pages 95-114, August.
    4. Baldursson , Fridrik M. & von der Fehr, Nils-Henrik, 2007. "Vertical Integration and Long-Term Contracts in Risky Markets," Memorandum 01/2007, Oslo University, Department of Economics.
    5. Federico, Giulio & Lopez, Angel L., 2009. "Divesting power," IESE Research Papers D/812, IESE Business School.
    6. Roland Meyer, 2012. "Vertical Economies and the Costs of Separating Electricity Supply--A Review of Theoretical and Empirical Literature," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    7. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    8. Dali Zhang & Huifu Xu & Yue Wu, 2010. "A two stage stochastic equilibrium model for electricity markets with two way contracts," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 71(1), pages 1-45, February.
    9. Christian Winzer, 2013. "Robustness of Various Capacity Mechanisms to Regulatory Errors Abstract: In the EU, several governments have introduced or are contemplating a capacity mechanism to ensure adequate investment in gener," Cambridge Working Papers in Economics 1338, Faculty of Economics, University of Cambridge.
    10. Scholz, Sebastian, 2010. "Derivatives and Default Risk," Discussion Papers in Economics 11317, University of Munich, Department of Economics.

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