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Why Do Commodity Futures Markets Exist? Their Role in Managing Marketing Channel Relationships

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  • Pennings, Joost M.E.
  • Egelkraut, Thorsten M.

Abstract

This paper advances a behavioral perspective on the existence of futures markets. The proposed approach extends and complements the existing framework by focusing on the interorganizational relationships between buyers and sellers. We show how decision-makers' risk attitudes and risk preferences determine contract preferences, and how potential conflicts in these contract preferences may hamper subsequent business relationships between parties. Futures markets can therefore be viewed as third-party services with the ability to solve potential conflicts in decision-makers' contract preferences. Our approach explains why we observe marketing channel structures despite the different contract preferences of the parties involved. The expansion of theory in this direction is particularly useful in understanding how behavioral elements such as risk attitudes and risk perceptions, along with marketing institutions like futures markets, shape interorganizational relationships.

Suggested Citation

  • Pennings, Joost M.E. & Egelkraut, Thorsten M., 2005. "Why Do Commodity Futures Markets Exist? Their Role in Managing Marketing Channel Relationships," 2005 Annual meeting, July 24-27, Providence, RI 19433, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19433
    DOI: 10.22004/ag.econ.19433
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    References listed on IDEAS

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    1. Joost M. E. Pennings & Brian Wansink, 2004. "Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures," The Journal of Business, University of Chicago Press, vol. 77(4), pages 697-724, October.
    2. Richard Engelbrecht-Wiggans, 1987. "On Optimal Competitive Contracting," Management Science, INFORMS, vol. 33(11), pages 1481-1488, November.
    3. Telser, Lester G, 1981. "Why There Are Organized Futures Markets," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 1-22, April.
    4. Kenneth R. MacCrimmon & Donald A. Wehrung, 1990. "Characteristics of Risk Taking Executives," Management Science, INFORMS, vol. 36(4), pages 422-435, April.
    Full references (including those not matched with items on IDEAS)

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