Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/183422 
Year of Publication: 
2017
Series/Report no.: 
IFN Working Paper No. 1193
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
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.
Subjects: 
Forward pricing
Electricity markets
Market power
Arbitrage
JEL: 
D43
G13
L12
L13
Q41
Document Type: 
Working Paper

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