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...

Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use purely financial derivatives to extract rent from a potential entrant. It can do so by selling derivatives to a large buyer for more than his expected production level. This...

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...

It is well established that an incumbent firm may use exclusivity contracts so as to monopolize an industry or deter entry. Such an anticompetitive practice could be tolerated if it were associated with sufficiently large efficiency gains, e.g. insuring buyers against price volatility. In this...