Does Speculation Matters for Wheat Price Shocks?

When Speculation Matters

Price Destabilizing Speculation

The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters. It is sometimes asserted that rational speculative activity must result in more stable prices because speculators buy when prices are low and sell when they are high. This is incorrect. Speculators buy when the chances of price appreciation are high, selling when the chan...

Speculation in First-Price Auctions with Resale

We analyze first-price auctions with two asymmetric bidders, where the winner can offer the good for resale to the loser. One bidder has a private value for the good, the other bidder—the speculator—has zero value. We show that, independently of the resale market rules, the speculator’s expected profit equals zero. Nevertheless, the opportunity for resale can create a role for an active specula...

The Simple Economics of Commodity Price Speculation

The price of crude oil in the U.S. never exceeded $40 per barrel until mid-2004. By 2006 it reached $70, and in July 2008 it peaked at $145. By late 2008 it had plummeted to about $30 before increasing to $110 in 2011. Are speculators at least partly to blame for these sharp price changes? We clarify the effects of speculators on commodity prices. We focus on crude oil, but our approach can be ...

Speculation in Second-Price Auctions with Resale

This paper contributes to the literature on second-price auctions with resale. We add speculators—bidders with value zero—to the standard symmetric independent private values environment. There always exists a continuum of inefficient equilibria that are profitable for a speculator. With no reserve price in the initial auction, speculation can enhance the initial seller’s expected revenue. On t...