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UBC Theses and Dissertations

Commodity futures markets with imperfectly competitive producers Thille, Henry


Commodity futures markets are often thought of as good examples of perfectly competitive markets. However, there are many commodities that are produced in concentrated industries and traded on large commodity exchanges. Nickel, aluminum, lead, zinc, tin, oil, and coffee are some examples. This thesis examines the effects of concentrated production on output and prices in these markets. The analysis includes the possibility that firms can trade futures contracts for their output and also store their output. A dynamic model is developed that examines how a duopoly could use futures trading and storage strategically to affect outcomes in subsequent periods. I examine futures trading for a perishable good and storage with no futures trading separately in order to highlight the potential stategic use of these activities on their own. I also analyse a model in which both futures trading and storage are allowed. I show that both futures positions and storage would be used strategically by the duopolists, in contrast to the results of previous work that used two-period models only. By allowing for uncertainty in the form of demand and cost shocks, the solution to the model can be used to provide some implications for correlations among industry level variables. These correlations are examined for the world lead, zinc, and copper industries. Weak support for the model is found, however, estimation of the vector auotregression implied by the model suggests the model in its present form is unable to fit the data very well.

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