Exclusion Through Speculation

TILEC Discussion Paper No. 2010-027

CentER Discussion Paper No. 2010-83

28 Pages Posted: 2 Aug 2010 Last revised: 24 Jun 2013

See all articles by Cédric Argenton

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC; University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: July 29, 2010

Abstract

Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use financial derivatives to extract rent from a potential entrant. The incumbent can indeed sell insurance to a large buyer to commit himself to compete aggressively in the spot market and drive the price down for the entrant. It can do so by selling derivatives for more than his expected production level, i.e. by taking a speculative position. This comes at the cost of inefficiently deterring entry.

Keywords: exclusion, monopolization, contracts, financial contracts, derivatives, risk aversion, speculation

JEL Classification: D43, D86, K21, L12, L42

Suggested Citation

Argenton, Cédric and Willems, Bert, Exclusion Through Speculation (July 29, 2010). TILEC Discussion Paper No. 2010-027, CentER Discussion Paper No. 2010-83, Available at SSRN: https://ssrn.com/abstract=1651112 or http://dx.doi.org/10.2139/ssrn.1651112

Cédric Argenton (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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