Long-Term Contracting and Multiple-Price Systems

Robert Hubbard and Robert J Weiner

The Journal of Business, 1992, vol. 65, issue 2, 177-98

Abstract: This article examines product markets in which long-term contracts and spot transactions coexist. Such markets are characterized by "multiple-price systems," wherein adjustment to supply and demand shocks occurs through spot prices, while contract prices are fixed or adjust slowly. The authors derive the existence of contracts, as well as the equilibrium fraction of spot trade, in the framework of an optimizing model and analyze the effects of shocks on market equilibrium when some buyers and sellers "locked in" contractually. The model is employed to interpret the change in the copper market from a multiple-price system to one characterized solely by spot trade. Copyright 1992 by University of Chicago Press.

Date: 1992
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Working Paper: Long-Term Contracting and Multiple-Price Systems (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:65:y:1992:i:2:p:177-98

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