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Competition with Forward Contracts : A Laboratories Analysis Motivated by Electricity Market Design

Author

Listed:
  • Jordi Brandts

    (IAE - Institut d'Anàlisi Econòmica - UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

  • Paul Pezanis-Christou

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, IAE - Institut d'Anàlisi Econòmica - UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

  • Arthur Schram

    (CREED - Center for Research in Experimental Economics and Political Decision Making - UvA - Universiteit van Amsterdam)

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.

Suggested Citation

  • Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2006. "Competition with Forward Contracts : A Laboratories Analysis Motivated by Electricity Market Design," Post-Print hal-00279255, HAL.
    • Handle: RePEc:hal:journl:hal-00279255
    DOI: 10.1111/j.1468-0297.2007.02109.x
    as

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