Date: 2011
Type: Working Paper
Exclusion Through Speculation
Working Paper, EUI RSCAS, 2011/63, Loyola de Palacio Programme on Energy Policy
ARGENTON, Cédric, WILLEMS, Bert, Exclusion Through Speculation, EUI RSCAS, 2011/63, Loyola de Palacio Programme on Energy Policy - https://hdl.handle.net/1814/19497
Retrieved from Cadmus, EUI Research Repository
Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use purely financial derivatives to extract rent from a potential entrant. It can do so by selling derivatives to a large buyer for more than his expected production level. This exclusionary scheme comes at the cost of inefficiently deterring entry and creating too much risk for the buyer. We further show that it can still be used when contracts are offered anonymously through a broker, as the incumbent can signal its identity by adjusting the contracting terms.
Additional information:
An earlier version of this paper was published as TILEC discussion paper 2010-027, http://ssrn.com/abstract=1651112
Cadmus permanent link: https://hdl.handle.net/1814/19497
ISSN: 1028-3625
Series/Number: EUI RSCAS; 2011/63; Loyola de Palacio Programme on Energy Policy
Keyword(s): Exclusion monopolization contracts financial contracts derivatives risk aversion speculation
Sponsorship and Funder information:
Bert Willems’ work was funded under a Marie Curie Intra European Fellowship (PIEF-GA-2008-221085)
