Contracting, Captive Supplies, And Price Behavior
Theoretical and simulation results clarify the role of procurement contracting in determining spot price levels and volatility. A generic model determines market share across quality. Actual supply is specified as price dependent and stochastic. Simulation examines the sensitivity of price level and volatility to extent of forward contracting, risk aversion, and ability to adjust spot market demand (recontracting). The results show that as forward contracting increases mean spot price decreases and variance increases. This effect increases as risk aversion decreases and as extent of recontracting adjustment in spot demand decreases.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.agebb.missouri.edu/ncrext/ncr134/|
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- Ward, Clement E. & Koontz, Stephen R. & Schroeder, Ted C., 1998. "Impacts From Captive Supplies On Fed Cattle Transaction Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(02), December.
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- Azzeddine Azzam, 1998. "Captive Supplies, Market Conduct, and the Open-Market Price," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 76-83.
- Elam, Emmett W., 1992. "Cash Forward Contracting Versus Hedging Of Fed Cattle, And The Impact Of Cash Contracting On Cash Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(01), July.
- Stephen R. Koontz, 1999. "Marketing Agreement Impacts in an Experimental Market for Fed Cattle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 347-358.
- Hennessy, David A. & Lawrence, John D., 1999. "Contractual Relations, Control, and Quality in the Hog Sector," Staff General Research Papers 1706, Iowa State University, Department of Economics.
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