A Squeezer Round the Corner? Self-Regulation and Forward Markets

Peter Møllgaard

Economic Journal, 1997, vol. 107, issue 440, 104-12

Abstract: Squeezes are registered in the forward market for Brent crude oil. The squeezer accumulates forward contracts and creates artificial demand. This causes the price to surge and introduces uncertainty about the market outcome. Squeezes therefore render the market institution less palatable to other market participants. Producers may have a longterm interest in keeping market clearing smooth, e.g., by supplying stocks to squeezed traders. The extent to which such self-regulation should be carried out is analyzed in the context of a repeated game. Unless the probability of a squeeze is very small, self-regulation should be possible. Copyright 1997 by Royal Economic Society.

Date: 1997
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