 On the Coexistence of Spot and Contract Markets: a Delivery Requirement ExplanationGeorge W.J. Hendrikse No 21041, 2006 Annual meeting, July 23-26, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) Abstract: A model is presented in which spot and contract market exchange co-exist. A contract consists of a delivery requirement between an upstream and a downstream party. Contract formation determines to a certain extent the probability distribution of the spot market price. This contract formation externality entails the removal of high reservation price buyers and various sellers from the spot market. The first effect decreases the expected spot market price when the number of contracts is small, whereas the decrease in the number of sellers and additional residual contract demand increase the expected spot market price beyond a certain number of contracts. It implies an endogenous upper bound on the number of contracts. Contract prices are positively related to the number of contracts. Finally, additional contracts reduce the variance of the spot market price when the number of contracts is sufficiently large. Keywords: Marketing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea06:21041 Access Statistics for this paper More papers in 2006 Annual meeting, July 23-26, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.