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Monopoly Power, Futures Market Manipulation, and the Oil Price Bubble


  • Just David R.

    (Cornell University)

  • Just Richard E.

    (University of Maryland)


The US Congress has become concerned with the possibility that much of the recent rise in oil prices is due to speculation or market manipulation. We propose a theory of futures market manipulation that can potentially explain such manipulation and an associated price bubble. Our model involves a price-setting off-shore exporter (e.g., OPEC) of a commodity (e.g., oil) with price-taking domestic production and consumption sectors. If domestic next-period price expectations are linked to futures prices, then OPEC may drive up current prices through manipulative buying in the futures market, achieving an increase in market power for their cash-market exports. An increase in future price expectations increases storage, artificially driving up current market prices. We explore the conditions necessary to make this an optimal strategy for OPEC.

Suggested Citation

  • Just David R. & Just Richard E., 2008. "Monopoly Power, Futures Market Manipulation, and the Oil Price Bubble," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-29, December.
  • Handle: RePEc:bpj:bjafio:v:6:y:2008:i:2:n:2

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    References listed on IDEAS

    1. Xiaodong Du & David A. Hennessy & William M. Edwards, 2007. "Determinants of Iowa Cropland Cash Rental Rates: Testing Ricardian Rent Theory," Center for Agricultural and Rural Development (CARD) Publications 07-wp454, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Sergio H. Lence & Ashok K. Mishra, 2003. "The Impacts of Different Farm Programs on Cash Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 753-761.
    3. Yoder, Jonathan & Hossain, Ishrat & Epplin, Francis & Doye, Damona, 2008. "Contract duration and the division of labor in agricultural land leases," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 714-733, March.
    4. Lyubov A. Kurkalova & Christopher Burkart & Silvia Secchi, 2004. "Cropland Cash Rental Rates in the Upper Mississippi River Basin," Center for Agricultural and Rural Development (CARD) Publications 04-tr47, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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    Cited by:

    1. Philip Abbott, 2014. "Biofuels, Binding Constraints, and Agricultural Commodity Price Volatility," NBER Chapters,in: The Economics of Food Price Volatility, pages 91-131 National Bureau of Economic Research, Inc.
    2. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Working Papers 18873, National Bureau of Economic Research, Inc.

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