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Monopoly behaviour with speculative storage

Author

Listed:
  • Sébastien Mitraille

    (TBS - Toulouse Business School)

  • Henry Thille

    (University of Guelph [Guelf, Ontario, Canada])

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sébastien Mitraille & Henry Thille, 2009. "Monopoly behaviour with speculative storage," Post-Print hal-05227167, HAL.
    • Handle: RePEc:hal:journl:hal-05227167
    DOI: 10.1016/j.jedc.2009.02.005
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    Cited by:

    1. Hirbod Assa & Amal Dabbous & Nikolay Gospodinov, 2013. "A staggered pricing approach to modeling speculative storage: implications for commodity price dynamics," FRB Atlanta Working Paper 2013-08, Federal Reserve Bank of Atlanta.
    2. Stuermer, Martin, 2018. "150 Years Of Boom And Bust: What Drives Mineral Commodity Prices?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(3), pages 702-717, April.
    3. Gilbert, Christopher L., 2021. "Monopolistic supply management in world metals markets: How large was Mount Isa?," Journal of Commodity Markets, Elsevier, vol. 21(C).
    4. Mitraille, Sébastien & Thille, Henry, 2014. "Speculative storage in imperfectly competitive markets," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 44-59.
    5. Atle Oglend & Vesa-Heikki Soini, 2020. "Equilibrium Working Curves with Heterogeneous Agents," Computational Economics, Springer;Society for Computational Economics, vol. 56(2), pages 355-372, August.
    6. Sebastien Mitraille & Henry Thille, 2015. "Speculative Constraints on Oligopoly," Working Papers 1505, University of Guelph, Department of Economics and Finance.
    7. Sébastien Mitraille & Henry Thille, 2020. "Strategic advance sales, demand uncertainty and overcommitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(3), pages 789-828, April.
    8. Kleppe, Tore Selland & Oglend, Atle, 2017. "Estimating the competitive storage model: A simulated likelihood approach," Econometrics and Statistics, Elsevier, vol. 4(C), pages 39-56.
    9. Oglend, Atle & Kleppe, Tore Selland, 2017. "On the behavior of commodity prices when speculative storage is bounded," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 52-69.
    10. Tore S. Kleppe & Atle Oglend, 2019. "Can limits‐to‐arbitrage from bounded storage improve commodity term‐structure modeling?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(7), pages 865-889, July.
    11. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.

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