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The Impact of Forward Trading on Tacit Collusion: Experimental Evidence

  • Schubert, Jens

This article reports the results of a laboratory experiment that examines the strategic effect of forward contracts on market power in infinitely repeated duopolies. Two competing effects motivate the experimental design. Allaz and Vila (1993) argue that forward markets act like additional competitors in that they increase quantity competition among firms. Conversely, Liski and Montero (2006) argue that forward contracting can facilitate collusive outcomes by enabling firms to soften competition. The experiment provides a first simultaneous test of these rival effects. Contrary to previous experimental studies, the results do not support the quantity-competition effect. Further, the findings provide evidence in support of the collusive hypothesis.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43768.

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Date of creation: 01 Jan 2013
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Handle: RePEc:pra:mprapa:43768
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  1. Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
  2. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
  3. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
  4. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December.
  5. Silvester van Koten & Andreas Ortmann, 2011. "Structural versus Behavioral Measures in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns," RSCAS Working Papers 2011/07, European University Institute.
  6. Normann, Hans-Theo & Wallace, Brian, 2011. "The impact of the termination rule on cooperation in a prisoner's dilemma experiment," DICE Discussion Papers 19, Düsseldorf Institute for Competition Economics (DICE), University of Düsseldorf.
  7. 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.
  8. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
  9. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March.
  10. Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
  11. Ferreira, José Luis, 2000. "Strategic interaction between futures and spot markets," UC3M Working papers. Economics 7273, Universidad Carlos III de Madrid. Departamento de Economía.
  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  13. 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.
  14. Kujal, Praveen & Ferreira, José Luis & Rassenti, Stephen, 2010. "Multiple openings of forward markets: experimental evidence," UC3M Working papers. Economics we1023, Universidad Carlos III de Madrid. Departamento de Economía.
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