Control, coordination and conflict on international commodity markets

Abstract

The effects of price stabilization policies have been investigated for both theoretical and empirical models. The institutional construct for international commodity markets is that a buffer stock manager employs a band width rule or a price adjustment rule to stabilize the world market price. In those investigations it is assumed that the other market participants do not react to the stabilization activities of the buffer stock manager. This paper describes an international commodity market as a difference game between buffer stock manager, producing countries and consuming countries and uses an empirical model for the world cocoa market to analyse the effects. The feedback Nash behavioural equilibrium for this game is compared with the optimal control outcome which ignores the strategic behaviour in producing countries and consuming countries. It is found that producers and consumers engage in storage activities which have a negative effect on the stabilization efforts of the buffer stock manager but which decrease the operating costs of the buffer stock, decrease the revenues of the producers and decrease the costs of consumers.