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Cartel Behaviour and Futures Trading

Author

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  • Ronald W Anderson
  • Tiziano Brianza

Abstract

In this paper we explore how a cartel which is able to cooperate to a limited degree on a futures market may be able to implement a cooperative production plan which would be self-enforcing. The basic result of the paper is that appropriately chosen initial allocations of long positions in the futures market will induce members to implement noncooperatively any cooperative outcome a cartel might desire, but which would be unachievable otherwise because production quotas cannot be enforced directly. The optimal cartel futures policies are characterized both with and without side-payments. Possible obstacles to these policies are analysed. In particular we explicitly characterize the conditions under which the cartel futures policies will fail because they result in a corner of the futures market.

Suggested Citation

  • Ronald W Anderson & Tiziano Brianza, 1991. "Cartel Behaviour and Futures Trading," CEPR Financial Markets Paper 0014, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
  • Handle: RePEc:cpr:ceprfm:0014
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    Cited by:

    1. Le Coq, ChloƩ, 2003. "Long-Term Supply Contracts and Collusion in the Electricity Markets," SSE/EFI Working Paper Series in Economics and Finance 552, Stockholm School of Economics.

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    Keywords

    Cartels; Commodity Agreements; Futures Markets;

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