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Forward Trading in Exhaustible-Resource Oligopoly

Author

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  • Juan-Pablo Montero

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • Matti Liski

Abstract

We 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.

Suggested Citation

  • Juan-Pablo Montero & Matti Liski, 2008. "Forward Trading in Exhaustible-Resource Oligopoly," Documentos de Trabajo 341, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:341
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-341.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    3. Pablo Serra, 2024. "The Auction of Contracts by Consumer Groups and the Effect on Market Power," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 341-359, May.
    4. Bocar Samba BA, 2017. "Recycling of a Primary Resource and Market Power: The Alcoa Case," Working Papers 2017.27, FAERE - French Association of Environmental and Resource Economists.
    5. Benchekroun, Hassan & van der Meijden, Gerard & Withagen, Cees, 2019. "An oligopoly-fringe non-renewable resource game in the presence of a renewable substitute," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 1-20.

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    Keywords

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    JEL classification:

    • 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

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