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Competition with forward contracts: a laboratory analysis motivated by electricity market design

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  • Jordi Brandts
  • Paul Pezanis-Christou
  • Arthur Schram

Abstract

We use experiments to study the efficiency effects of adding the possibility of forward contracting to a spot market. We focus on the strategic implications of a forward market and consider both quantity and supply function competition. In both cases we compare the effect of adding a contract market to the introduction of an additional competitor. We find that, as theory suggests, for both types of competition the introduction of a forward market significantly lowers prices. The combination of supply function competition with a forward market leads to high efficiency levels. Copyright 2008 The Author(s). Journal compilation Royal Economic Society 2008.

Suggested Citation

  • Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2008. "Competition with forward contracts: a laboratory analysis motivated by electricity market design," Economic Journal, Royal Economic Society, vol. 118(525), pages 192-214, January.
  • Handle: RePEc:ecj:econjl:v:118:y:2008:i:525:p:192-214
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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