Speculative storage in imperfectly competitive markets

Sebastien Mitraille and Henry Thille

International Journal of Industrial Organization, 2014, vol. 35, issue C, 44-59

Abstract: Markets for many commodities are characterized by imperfectly competitive production as well as substantial storage by speculators who are attracted by significant price volatility. We examine how speculative storage affects the behavior of an oligopoly producing a commodity for which demand is subject to random shocks. Speculators compete with consumers when purchasing the commodity and then subsequently compete with producers when selling their stocks, resulting in two opposing incentives: on the one hand, producers would like to increase production to capture future sales in advance by selling to speculators; while on the other hand, they would like to withhold production to deter speculation, thereby eliminating the additional supply from speculators in future periods. We find that the incentive to sell to speculators can be quite strong, potentially resulting in prices sufficiently high to drive consumers from the market. Furthermore, these incentives are non-monotonic in the number of producers: speculative storage occurs more frequently in a relatively concentrated oligopoly than in the extremes of monopoly or perfect competition.

Keywords: Inventories; Cournot oligopoly; Speculation (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167718714000605
Full text for ScienceDirect subscribers only

Related works:
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:eee:indorg:v:35:y:2014:i:c:p:44-59

DOI: 10.1016/j.ijindorg.2014.07.001

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().