Exclusion through speculation

Cédric Argenton and Bert Willems

No 2011/63, RSCAS Working Papers from European University Institute

Abstract: 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.

Keywords: exclusion; monopolization; contracts; financial contracts; derivatives; risk aversion; speculation (search for similar items in EconPapers)
Date: 2011-02-12
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Exclusion through speculation (2015)
Working Paper: Exclusion through speculation (2015)
Working Paper: Exclusion Through Speculation (2010)
Working Paper: Exclusion Through Speculation (2010)
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