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Forward trading and collusion in oligopoly

  • Liski, Matti
  • Montero, Juan-Pablo

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.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 131 (2006)
Issue (Month): 1 (November)
Pages: 212-230

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Handle: RePEc:eee:jetheo:v:131:y:2006:i:1:p:212-230
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  2. Juan-Pablo Montero & Hugh Rudnick, 2002. "Second Generation Electricity Reforms in Latin America and the California Paradigm," Documentos de Trabajo 216, Instituto de Economia. Pontificia Universidad Católica de Chile..
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  10. Hugh Rudnick & Juan-Pablo Montero, 2002. "Second Generation Electricity Reforms in Latin America and the California Paradigm," Journal of Industry, Competition and Trade, Springer, vol. 2(1), pages 159-172, June.
  11. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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