Forward Trading in Exhaustible-Resource Oligopoly
AbstractWe analyze oligopolistic exhaustible-resource depletion when firms can trade forward contracts on deliveries, a market structure prevalent in many resource commodity markets. We find that this organization of trade has substantial implications for resource depletion. As firms’ interactions become infinitely frequent, resource stocks become fully contracted and the symmetric oligopolistic equilibrium converges to the perfectly competitive Hotelling (1931) outcome. Asymmetries in stock holdings allow firms to partially escape the procompetitive effect of contracting: a large stock provides commitment to leave a fraction of the stock uncontracted. In contrast, a small stock provides commitment to sell early, during the most profitable part of the equilibrium.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 341.
Date of creation: 2008
Date of revision:
Forward trading; exhaustible resources; oligopoly pricing;
Other versions of this item:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-ENV-2008-10-07 (Environmental Economics)
- NEP-MIC-2008-10-07 (Microeconomics)
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