The role of observability in futures markets
José Luis Ferreira ()
UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía
Allaz and Vila (1993) show that oligopolistic industries may become more competitive if a futures market is added previous to the spot market. Later, Hughes and Kao (1997) show that this result occurs only if positions in the futures market are observed, and that without this condition the result is again the Cournot equilibrium. In this work we study different explicit formulations of observability and argue that the lack of it may induce a result very different from the one anticipated in Hughes and Kao (1997). By comparing the game forms of the different models, one can discuss about the suitability of either of them. In particular, the one we find most reasonable fit better some of the stylized facts of an industry like the power market in the U.K.
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Journal Article: The Role of Observability in Futures Markets (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we015316
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