Market power and forward prices

Keith Ruddell, Tony Downward and Andy Philpott

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.

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Year of publication:	November 29, 2017
Authors:	Ruddell, Keith ; Downward, Tony ; Philpott, Andy
Publisher:	Stockholm, Sweden : Research Institute of Industrial Economics
Subject:	Forward pricing \| Electricity markets \| Market power \| Arbitrage \| Marktmacht \| Strompreis \| Electricity price \| Derivat \| Derivative \| Optionspreistheorie \| Option pricing theory \| Elektrizitätswirtschaft \| Electric power industry \| Energiemarkt \| Energy market

Extent:	1 Online-Ressource (circa 9 Seiten)
Series:	IFN working paper. - Stockholm, ZDB-ID 2483275-3. - Vol. no. 1193 (2017)
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Other identifiers:	hdl:10419/183422 [Handle]
Classification:	D43 - Oligopoly and Other Forms of Market Imperfection ; G13 - Contingent Pricing; Futures Pricing ; L12 - Monopoly; Monopolization Strategies ; L13 - Oligopoly and Other Imperfect Markets ; Q41 - Demand and Supply
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011754259