Market power and forward prices

Arbeitspapier

We construct a model of strategic behavior in sequential markets which exhibits a persistent forward price premium. On the spot market, producers wield market power while purchasers are price takers. Producers with forward commitments have less incentive to raise prices on the spot market. Purchasers are thus willing to pay a premium to producers for forward contracts. We argue that this type of forward premium is not susceptible to arbitrage by speculators on the forward market, since purchasers prefer forward contracts backed by producers.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFN Working Paper ; No. 1193

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Contingent Pricing; Futures Pricing; option pricing ; Monopoly; Monopolization Strategies ; Oligopoly and Other Imperfect Markets ; Energy: Demand and Supply; Prices
• Subject: Forward pricing ; Electricity markets ; Market power ; Arbitrage

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ruddell, Keith ; Downward, Tony ; Philpott, Andy
• Event: Veröffentlichung
• (who): Research Institute of Industrial Economics (IFN)
• (where): Stockholm
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/183422
• Last update: 10.03.2025, 11:43 AM CET