Exclusion through speculation

Argenton, Cédric;Willems, Bert
(2015) International Journal of Industrial Organization — Vol. 39, p. 1-9 (2015)

Files

1-s20-S016771871500003X-main.pdf
  • Closed Access
  • Adobe PDF
  • 378.39 KB
Request a copy

Details

Authors
  • Argenton, CédricTilburg University
    Author
  • Willems, BertUCLouvain
    Author
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.
Affiliations

Citations

  • APA
  • Chicago
  • FWB

Argenton, C., & Willems, B. (2015). Exclusion through speculation. International Journal of Industrial Organization, 39, 1-9. https://doi.org/10.1016/j.ijindorg.2015.01.002 (Original work published 2015)