Quantity and Price Adjustment in Long-Term Contracts: A Case Study of Petroleum Coke

Abstract

Much economic activity takes place within a framework of complex, long-term contracts. While economists have shown increased interest in these contracts, surprisingly little is known about them, or, indeed, about how to analyze the contracting activity of private economic actors. A case study of the actual contracts used in one industry could provide sorely needed data about the way in which reasonably clever businessmen and lawyers cope with problems scholars might consider intractable. In this article, we provide such an analysis of contracts concerning a particular product – petroleum coke. We focus on the problems of quantity and price adjustment. We do not deal, except in passing, with the question of why the parties chose long-term contracts rather than short-term agreements or vertical integration by contract rather than by ownership.