Working Paper No. 937

Relaxing Competition through Speculation: Committing to a Negative Supply Slope

Published: November 7, 2012Pages: 32Keywords: Supply function equilibrium; Option contracts; Strategic commitment; SpeculationJEL-codes: C73; D43; D44; G13; L13; L94
Published version

Relaxing Competition through Speculation: Committing to a Negative Supply Slope Pär Holmberg and Bert Willems

We demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete with supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

Pär Holmberg


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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