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Monopoly Power with a Short Selling Constraint

Author

Listed:
  • Robert Baumann

    (Department of Economics, College of the Holy Cross)

  • Bryan Engelhardt

    (Department of Economics, College of the Holy Cross)

  • David L. Fuller

    (College of Business, University of Wisconsin - Oshkosh)

Abstract

We show if a speculator can benefit from reducing a monopoly's rents through short selling, then a speculator may take a short position in a monopoly, overcome the barriers to entry, and compete with the monopoly. The competition drives down the monopoly�s rents, and as a result, the short position becomes profitable and covers the cost of entry. If entry is impossible, then the speculator may coordinate and pay the firm�s counter-parties to stop trading with the monopoly rather than entering. Either way, increasing a speculator�s ability to short a firm�s rents results in a constraint on the monopoly and forces it to act more like a price taker. The mechanism is a market based approach to antitrust.

Suggested Citation

  • Robert Baumann & Bryan Engelhardt & David L. Fuller, 2016. "Monopoly Power with a Short Selling Constraint," Working Papers 1603, College of the Holy Cross, Department of Economics.
    • Handle: RePEc:hcx:wpaper:1603
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    References listed on IDEAS

    as
    1. Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
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    3. Christopher R. Knittel & Robert S. Pindyck, 2016. "The Simple Economics of Commodity Price Speculation," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 85-110, April.
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    5. Robert W. Crandall & Clifford Winston, 2005. "Does antitrust policy improve consumer welfare? Assessing the evidence," Chapters, in: Colin Robinson (ed.), Governments, Competition and Utility Regulation, chapter 2, Edward Elgar Publishing.
    6. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    antitrust; monopoly; short selling;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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