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Forward Contracting and Collusion in Oligopoly

Author

Listed:
  • Juan-Pablo Montero

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

We consider an infinitely-repeated oligopoly in which at each period firms not only serve the spot market by either competing in prices or quantities but also have the opportunity to trade forward contracts. Contrary to the pro-competitive results of finite-horizon models, we find that the possibility of forward trading allows firms to sustain collusive profits that otherwise would not be possible. The result holds both for price and quantity competition and follows because (collusive) contracting of future sales is more effective in deterring deviations from the collusive plan than in inducing the previously identified pro-competitive effects.

Suggested Citation

  • Juan-Pablo Montero, 2004. "Forward Contracting and Collusion in Oligopoly," Documentos de Trabajo 271, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:271
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-271.pdf
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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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