Durable Goods Monopoly and Forward Markets

Gregory Goering and Michael Pippenger ()

International Journal of the Economics of Business, 2002, vol. 9, issue 2, 271-282

Abstract: The existence of forward markets has long been explained by risk hedging behaviour. More recently, attention has focused on the Cournot competition rationale for the emergence of forward markets since the quantity of forward transactions can be used as strategic variable. However, an important facet of many forward markets that has typically been ignored in the literature is the durable nature of output (e.g. nickel and lead). We show that forward markets may optimally emerge as long as a monopolist sells any fraction of its durable output. In particular, the comparative static analysis shows that as the durability of the product increases or the fraction of output sold increases, the monopolist will optimally increase the number of forward contracts purchased due to an exacerbated commitment problem with buyers. Our analysis also provides another explanation for differences between the forward price and the expected future spot price of a commodity that does not rely on uncertainty or risk considerations.

Keywords: Forward Markets; Durable Goods; Monopoly (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.tandfonline.com/10.1080/13571510210135005A (text/html)
Access to full text is restricted to subscribers.

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:taf:ijecbs:v:9:y:2002:i:2:p:271-282

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CIJB20

DOI: 10.1080/13571510210135005A

Access Statistics for this article

International Journal of the Economics of Business is currently edited by Eleanor Morgan

More articles in International Journal of the Economics of Business from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().