Speculation on Primary Commodities: The Effects of Restricted Entry

John McLaren

The Review of Economic Studies, 1999, vol. 66, issue 4, 853-871

Abstract: We present a model of oligopolistic commodity speculation, in which a limited number of speculators practice non-cooperative storage in an infinite-horizon game. A significant technical difficulty due to the non-negative stock constraint is overcome, and a tractable sub-game perfect equilibrium is presented, in which it is shown that less is stored and prices are more volatile than under perfect competition. It turns out that a tax on consumption of the good would increase storage, stabilize prices, increase welfare and raise speculative profits; the oligopolists would thus lobby for a tariff raised against their own shipments.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:66:y:1999:i:4:p:853-871.

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