Exclusion through speculation

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We demonstrate how an incumbent producer of commodities can use cash-settled derivatives contracts to deter entry and extract rents from a potential competitor. By selling more derivatives than total demand, the producer commits to low prices and forces the entrant to price low upon entry. By setting a high upfront derivatives price, the producer can extract the consumer's gains from those low prices. This exclusionary scheme becomes more difficult when the buyer becomes more risk averse and with multiple buyers.
Original languageEnglish
Pages (from-to)1-9
JournalInternational Journal of Industrial Organization
Volume39
DOIs
Publication statusPublished - Mar 2015

Keywords

  • Exclusion
  • Monopolization
  • Financial contracts
  • Derivatives
  • Risk Aversion

Fingerprint Dive into the research topics of 'Exclusion through speculation'. Together they form a unique fingerprint.

Cite this