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Exclusion Through Speculation

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  • Argenton, C.

    (Tilburg University, Center For Economic Research)

  • Willems, Bert

    (Tilburg University, Center For Economic Research)

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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Suggested Citation

  • Argenton, C. & Willems, Bert, 2010. "Exclusion Through Speculation," Discussion Paper 2010-83, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:af38cac2-1854-41b2-924e-5e5e2eeeacc9
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    Cited by:

    1. Holmberg, Pär & Willems, Bert, 2015. "Relaxing competition through speculation: Committing to a negative supply slope," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 236-266.
    2. Argenton, C. & Willems, Bert, 2009. "Exclusivity as Inefficient Insurance," Discussion Paper 2009-24, Tilburg University, Center for Economic Research.

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    More about this item

    Keywords

    exclusion; monopolization; contracts; financial contracts; derivatives; risk aversion; speculation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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