The length of contracts and collusion
Many commodities (including energy, agricultural products and metals) are sold both on spot markets and through long-term contracts which commit the parties to exchange the commodity in each of a number of spot market periods. This paper shows how the length of contracts affects the possibility of collusion in a repeated price-setting game. Contracts can both help and hinder collusion, because they reduce the size of the spot market, cutting both the immediate gain from defection and the punishment for deviation. Firms can always sustain some collusive price above marginal cost if they sell the right number of contracts, of any duration, whatever their discount factor. As the duration of contracts increases, however, collusion becomes harder to sustain.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
- Margaret E. Slade & Henry Thille, 2006. "Commodity Spot Prices: An Exploratory Assessment of Market Structure and Forward-Trading Effects," Economica, London School of Economics and Political Science, vol. 73(290), pages 229-256, 05.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
- Ferreira, Jose Luis, 2003.
"Strategic interaction between futures and spot markets,"
Journal of Economic Theory,
Elsevier, vol. 108(1), pages 141-151, January.
- Ferreira, José Luis, 2000. "Strategic interaction between futures and spot markets," UC3M Working papers. Economics 7273, Universidad Carlos III de Madrid. Departamento de Economía.
- Liski, Matti & Montero, Juan-Pablo, 2006.
"Forward trading and collusion in oligopoly,"
Journal of Economic Theory,
Elsevier, vol. 131(1), pages 212-230, November.
- Matti Liski & Juan-Pablo Montero, 2004. "Forward trading and collusion in oligopoly," Working Papers 0412, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Matti Liski & Juan-Pablo Montero, 2005. "Forward trading and collusion in oligopoly," Working Papers 0506, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:28:y:2010:i:1:p:21-29. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.