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Exclusion through speculation
Argenton,Cedric Willems,Bert
Argenton,Cedric
Willems,Bert
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.
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Date
2015-03
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Keywords
Exclusion, Monopolization, Financial contracts, Derivatives, Risk Aversion, D43 - Oligopoly and Other Forms of Market Imperfection, D86 - Economics of Contract: Theory, K21 - Antitrust Law, L12 - Monopoly ; Monopolization Strategies, L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts
Citation
Argenton, C & Willems, B 2015, 'Exclusion through speculation', International Journal of Industrial Organization, vol. 39, pp. 1-9. https://doi.org/10.1016/j.ijindorg.2015.01.002