Journal Article

Speculation on Primary Commodities: The Effects of Restricted Entry

John McLaren

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 66, issue 4, pages 853-871
Published in print October 1999 | ISSN: 0034-6527
Published online October 1999 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00111
Speculation on Primary Commodities: The Effects of Restricted Entry

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We present a model of oligopolistic commodity speculation, in which a limited number of speculators practice non-cooperative storage in an infinite-horizon game. A significant technical difficulty due to the non-negative stock constraint is overcome, and a tractable sub-game perfect equilibrium is presented, in which it is shown that less is stored and prices are more volatile than under perfect competition. It turns out that a tax on consumption of the good would increase storage, stabilize prices, increase welfare and raise speculative profits; the oligopolists would thus lobby for a tariff raised against their own shipments.

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Subjects: Economics

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