Market Power and Forward Prices

Keith Ruddell (), Tony Downward and Andy Philpott
Additional contact information
Tony Downward: University of Auckland
Andy Philpott: University of Auckland

No 1193, Working Paper Series from Research Institute of Industrial Economics

Abstract: We construct a model of strategic behavior in sequential markets which exhibits a persistent forward price premium. On the spot market, producers wield market power while purchasers are price takers. Producers with forward commitments have less incentive to raise prices on the spot market. Purchasers are thus willing to pay a premium to producers for forward contracts. We argue that this type of forward premium is not susceptible to arbitrage by speculators on the forward market, since purchasers prefer forward contracts backed by producers.

Keywords: Forward pricing; Electricity markets; Market power; Arbitrage (search for similar items in EconPapers)
JEL-codes: D43 G13 L12 L13 Q41 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2017-11-29
New Economics Papers: this item is included in nep-com, nep-cta, nep-ene, nep-gth, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1193.pdf (application/pdf)

Related works:
Journal Article: Market power and forward prices (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1193

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().