Do Forward Markets Enhance Competition? Experimental Evidence
Hedging risks is an important rationale for the existence of forward markets. However, Allaz and Vila (1993) show that duopolists can also have a strategic motive to sell forward, irrespective of exogenous uncertainties. Moreover, in their model the possibility of forward trading increases competitiveness between the two firms, raising consumer surplus and welfare. In this study we analyze the case of an n firm oligopoly in Allaz’ and Vila’s framework and derive comparative static predictions with regard to the market institution and the number of competitors. We then test the theoretical hypotheses in a laboratory experiment. Our findings support the main comparative-static predictions of the model but also suggest that, when compared to the increase in competitive pressure due to entry, the competition-enhancing effect of a forward market is weaker than predicted.
|Date of creation:||22 Aug 2002|
|Date of revision:||01 Oct 2004|
|Contact details of provider:|| Postal: |
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
Web page: http://www.hhs.se/
More information through EDIRC
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.
- Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2008.
"Competition with forward contracts: a laboratory analysis motivated by electricity market design,"
Royal Economic Society, vol. 118(525), pages 192-214, 01.
- Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2003. "Competition with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design," Levine's Bibliography 666156000000000172, UCLA Department of Economics.
- Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2003. "Competitions with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design," Working Papers 66, Barcelona Graduate School of Economics.
- Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2003. "Competition with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design," UFAE and IAE Working Papers 581.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Huck, S. & Müller, W. & Normann, H.T., 2004.
"Strategic delegation in experimental markets,"
Other publications TiSEM
64e031eb-d6bb-4b12-8b1e-1, Tilburg University, School of Economics and Management.
- Steffen Huck & Wieland Müller & Hans-Theo Norman, 2000. "Strategic Delegation in Experimental Markets," CESifo Working Paper Series 290, CESifo Group Munich.
- Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 2000. "Strategic delegation in experimental markets," SFB 373 Discussion Papers 2000,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001.
"Two are Few and Four are Many: Number Effects in Experimental Oligopolies,"
Bonn Econ Discussion Papers
bgse12_2001, University of Bonn, Germany.
- Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
- Newbery, D. M., 1997.
"Competition, Contracts and Entry in the Electricity Spot Market,"
Cambridge Working Papers in Economics
9707, Faculty of Economics, University of Cambridge.
- David M. Newbery, 1998. "Competition, Contracts, and Entry in the Electricity Spot Market," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 726-749, Winter.
- Phillips, Owen R. & Menkhaus, Dale J. & Krogmeier, Joseph L., 2001. "Production-to-order or production-to-stock: the endogenous choice of institution in experimental auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 44(3), pages 333-345, March.
- Sunder, S., 1992. "Experimental Asset Markets: A Survey," GSIA Working Papers 1992-19, Carnegie Mellon University, Tepper School of Business.
- José Luis Ferreira, 2001.
"The Role Of Observability In Futures Markets,"
Economics Working Papers
we015316, Universidad Carlos III, Departamento de Economía.
- Von Der Fehr, N.H.M. & Harbord, D., 1992. "Long-Tern Contracts and Imperfectly Competitive Spot Markets : A Study of U.K. Electricity Industry," Memorandum 14/1992, Oslo University, Department of Economics.
- Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, vol. 103(417), pages 444-53, March.
- Hughes, John S. & Kao, Jennifer L., 1997. "Strategic forward contracting and observability," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 121-133, November.
- Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
- Huck, Steffen & Muller, Wieland & Normann, Hans-Theo, 2001.
"Stackelberg Beats Cournot: On Collusion and Efficiency in Experimental Markets,"
Royal Economic Society, vol. 111(474), pages 749-65, October.
- Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997.
"Learning in Cournot Oligopoly - An Experiment,"
Game Theory and Information
9707009, EconWPA, revised 22 Jul 1997.
- Rajnish Kamat & Shmuel Oren, 2004. "Two-settlement Systems for Electricity Markets under Network Uncertainty and Market Power," Journal of Regulatory Economics, Springer, vol. 25(1), pages 5-37, January.
- Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
- Stanley S. Reynolds, 2000. "Durable-Goods Monopoly: Laboratory Market and Bargaining Experiments," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 375-394, Summer.
When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0506. 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: (Helena Lundin)
If references are entirely missing, you can add them using this form.