Speculation on Primary Commodities: The Effects of Restricted Entry

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.