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Strategic interaction between futures and spot markets

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dc.affiliation.dptoUC3M. Departamento de Economíaes
dc.contributor.authorFerreira, José Luis
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned2010-03-12T07:28:41Z
dc.date.available2010-03-12T07:28:41Z
dc.date.issued2000-07
dc.description.abstractThere is a literature (e.g., Allaz and Vila, 1992 and Hughes and Kao, 1997) showing that in an oligopolistic context, the presence of a futures market induces firms to use it in order to increase its market share. The consequence of this behavior is that the total quantity supplied by the industry increases, thus making the oligopolistic outcome closer to the competitive equilibrium. In the present work, we propose a model to study the interaction of spot and futures markets that does not imply this pro-competitive effect. The model is the same as in Allaz and Vila in the sense that firms have infinitely many moments to trade in the futures market before the spot market takes place. We analyze the equilibria in the infinite case directly and show that many equilibria emerge in a kind of folk-theorem result (but ours is not a repeated game). The equilibrium in which firms do not use the forward market is particularly robust as it satisfies the most demanding definition of renegotiation-proofuess. Furthermore, if firms are allowed to buy in the futures market, they can sustain the monopolistic outcome in a renegotiation-proof equilibrium (notice that there is only one period in the spot market). We also study the role of information in the model and argue that our results fit better stylized facts of some industries like the power market in the U.K.
dc.format.mimetypeapplication/pdf
dc.identifier.issn2340-5031
dc.identifier.urihttps://hdl.handle.net/10016/7273
dc.language.isoeng
dc.relation.hasversionhttp://hdl.handle.net/10016/5146
dc.relation.ispartofseriesUC3M Working papers. Economics
dc.relation.ispartofseries2000-54-20
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEconomía
dc.subject.otherFutures markets
dc.subject.otherCournot competition
dc.subject.otherCollusion
dc.titleStrategic interaction between futures and spot markets
dc.typeworking paper*
dspace.entity.typePublication
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