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Long-Term Contracting and Multiple-Price Systems

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  • Hubbard, R Glenn
  • Weiner, Robert J

Abstract

This article examines product markets in which long-term contracts and spot transactions coexist. Such markets are characterized by "multiple-price systems," wherein adjustment to supply and demand shocks occurs through spot prices, while contract prices are fixed or adjust slowly. The authors derive the existence of contracts, as well as the equilibrium fraction of spot trade, in the framework of an optimizing model and analyze the effects of shocks on market equilibrium when some buyers and sellers "locked in" contractually. The model is employed to interpret the change in the copper market from a multiple-price system to one characterized solely by spot trade. Copyright 1992 by University of Chicago Press.

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  • Hubbard, R Glenn & Weiner, Robert J, 1992. "Long-Term Contracting and Multiple-Price Systems," The Journal of Business, University of Chicago Press, vol. 65(2), pages 177-198, April.
    • Handle: RePEc:ucp:jnlbus:v:65:y:1992:i:2:p:177-98
    DOI: 10.1086/296564
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    2. Margaret E. Slade, 1991. "Strategic Pricing with Customer Rationing: The Case of Primary Metals," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 70-100, February.
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    5. R. Glenn Hubbard, 1986. "Supply Shocks and Price Adjustment in the World Oil Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 85-102.
    6. James G. MacKinnon & Nancy D. Olewiler, 1980. "Disequilibrium Estimation of the Demand for Copper," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 197-211, Spring.
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    16. Hubbard, R Glenn & Weiner, Robert J, 1989. "Contracting and Price Adjustment in Commodity Markets: Evidence from Copper and Oil," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 80-89, February.
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    18. Masahiro Kawai, 1983. "Spot and Futures Prices of Nonstorable Commodities Under Rational Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 235-254.
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    1. Gine,Xavier & Jacoby,Hanan G. & Gine,Xavier & Jacoby,Hanan G., 2016. "Markets, contracts, and uncertainty in a groundwater economy," Policy Research Working Paper Series 7694, The World Bank.
    2. repec:dau:papers:123456789/5372 is not listed on IDEAS
    3. ABADA, Ibrahim & EHRENMANN, Andreas & SMEERS, Yves, 2014. "Endogenizing long-term contracts in gas market models," LIDAM Discussion Papers CORE 2014036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Glachant, Jean-Michel & Hallack, Michelle & Vazquez, Miguel, 2014. "Gas network and market “à la Carte”: Identifying the fundamental choices," Utilities Policy, Elsevier, vol. 31(C), pages 238-245.
    5. Mahapatra, Santosh & Levental, Shlomo & Narasimhan, Ram, 2017. "Market price uncertainty, risk aversion and procurement: Combining contracts and open market sourcing alternatives," International Journal of Production Economics, Elsevier, vol. 185(C), pages 34-51.
    6. João Teixeira, 2014. "Outsourcing with long term contracts: capital structure and product market competition effects," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 327-356, February.
    7. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    8. Jean-Michel Glachant & Michelle Hallack & Miguel Vazquez, 2014. "Gas network and market diversity in the US, the EU and Australia: A story of network access rights," RSCAS Working Papers 2014/33, European University Institute.
    9. Miguel Vazquez & Michelle Hallack & Jean-Michel Glachant, 2013. "Gas Network and Market: à la carte?," RSCAS Working Papers 2013/73, European University Institute.
    10. Robert Amano & Scott Hendry, 2003. "Inflation persistence and costly market share adjustment: a preliminary analysis," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 134-146, Bank for International Settlements.
    11. Radetzki, Marian, 2013. "The relentless progress of commodity exchanges in the establishment of primary commodity prices," Resources Policy, Elsevier, vol. 38(3), pages 266-277.

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