We analyze the effects of competitive storage when the production of the good is controlled by a monopolist. The existence of competitive storers serves to reduce the monopolist’s effective demand when speculators are selling and to increase it when they are buying. This results in the monopolist manipulating the frequency of stock-outs, and hence, the price-smoothing effects of competitive storage. We use a two-period model to show that there is a lower probability of a stock-out under a monopolist than in a perfectly competitive market. We find that there exist states of the world in which the monopolist prices higher on average than what would occur in the absence of speculators. We then extend the model to an infinite horizon to examine the implications for price volatility using collocation methods to approximate both the expected future price and the expected value function. We confirm that stock-outs occur less frequently under the monopolist, even though price is more volatile. We also demonstrate that while free entry by speculators does reduce the gap in price volatility, it does not remove it.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Guelph, Department of Economics in its series Working Papers with number
0804.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: