Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.

Speculative Trading and Market Performance: The Effect of Arbitrageurs on Efficiency and Market Power in the New York Electricity Market

Abstract: While the effect speculators have on forward premiums (the difference between forward and expected spot prices) has been widely studied, there has been very little focus on the effect speculators have on competition in the product market. I study the effect speculators have had on production decisions and price levels in New York's deregulated electricity market. For the past two years of its operation, the market, which opened in November 1999, restricted trade to producers and retailers of electricity. During this period, the forward price of electricity in western New York was significantly higher than the expected spot price. I show that, after the market opened to purely speculative traders the forward premium significantly decreased. In addition, the forward price of transmission (the price difference between two geographically distinct points) ceased to differ significantly from the expected spot price of transmission. I present a theoretical model to help understand these price relationships and other possible effects of speculators on market prices and firms' production decisions. Absent speculators, the model predicts that firms with market power will price discriminate between the forward and spot markets for electricity, resulting in the forward price being higher than the expected spot price. This discrimination in the market for electricity will result in the forward price of transmission under-predicting the spot price of transmission. When speculators that prevent firms from price discriminating are added to the model forward price-cost margins decrease. Using detailed data on the marginal costs of generation units in New York, I test these predictions of the model, and find that, after controlling for other market changes, the forward price-cost margins of firms in western New York did, in fact, significantly decrease after speculators were allowed to enter the market.

Competition, Circulation and Advertising

Abstract: This report examines the impact of competition on newspaper circulation and advertising. It identifies a few general principles regarding competition and the long-run performance of daily, general circulation newspapers. Accomplishing this goal first requires a discussion of the nature of circulation and advertising competition. Economic theory states that competition exists when buyers can substitute one product for another. This willingness to substitute depends on several factors, such as price, price of substitutes, quality of products, income and degree to which various products provide the consumer with equivalent services. With news media, few products are perfect substitutes because readers add to the meaning by interpreting content and develop preferences for specific bundles of information, such as particular newspapers. Because of these preferences and the utility they provide, newspapers and all media do not fit well the assumptions of classic economic theories of perfect competition. Understanding newspaper competition requires different economic models than those emphasized in Economics 101.Classic models of competition suggest there are many firms in a market, each selling an identical product. Each firm also pays identical costs to produce its product. Consumers want to buy the product at the lowest possible price, and it doesn't matter which firm produces the product. Any firm that increases its price loses customers who switch to another firm selling the same product at a lower price. Each firm's product is a perfect substitute for any other firm's product. Firms cannot influence competitors and are forced to sell at a price that just covers their costs.Market conditions must change before firms can increase prices without losing all of their customers. If only a few firms compete, each individual firm's actions will influence the response from other firms. In oligopolistic markets firms might agree to raise prices above production costs, earning excess profits. Explicit pricing agreements are illegal, so oligopolists must depend on tacit understandings to maintain pricing discipline. However, such agreements are unstable, and individual firms will violate these understandings if they believe they can gain an advantage.When there is only one firm, the market is a monopoly. Monopolists can raise prices so long as consumers are still willing to pay for the product. However, even monopolists cannot raise prices without limit. If a newspaper is a monopoly, consumers and advertisers will substitute other forms of mass media when prices are too high. Monopolists with very high prices also risk attracting new competitors into their markets over the long run.Most newspaper markets have other forms of mass media that compete for advertising and for the attention of consumers. However, newspaper competition is often described as ranging from oligopoly to monopoly, depending on the market.Competition for ReadersNewspapers don't compete for readers solely on price. Newspapers offer news and other information that may not be available elsewhere, and newspapers' format and publication cycle differ from those of other mass media. Although the newspaper industry does not fit all the assumptions of classic economic theory, readers' behavior can be explained at least partially by the theory of monopolistic competition. ' It states that firms can limit to some degree the effects of competition on their firms by catering to differences in consumer taste. Differentiation makes products from other firms less than perfect substitutes. Differentiation costs money, and firms that use differentiation must raise prices to cover their higher production costs. However, even with the higher cost of differentiation, firms in an oligopolistic market may be able to raise prices high enough to earn excess profits. News media are naturally differentiated by their nature and distribution systems. Newspapers provide some types of information better than radio and television, but radio and TV news have their advantages as well. …

Why Do Price Limits Exist in Stock Markets? A Manipulation‐Based Explanation

Abstract: Numerous stock market regulators around the world impose daily price limits on individual stock price movements. We derive a simple model that shows that price limits may deter stock market manipulators. Based on our model's implications, we predict that regulators impose price limit rules for markets where the likelihood of manipulation is high. We present empirical evidence consistent with this hypothesis. Our study is the first to formally propose a manipulation-based rationale for the existence of price limits in stock markets.