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Forward trading and collusion of firms in volatile markets

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  • Aichele, Markus F.

Abstract

Commodity markets are characterized by large volumes of forward contracts as well as high volatility. They are often accused of weak competitive pressure. This article extends the existing literature by analyzing tacit collusion of firms, forward trading and volatility simultaneously. The expected collusive pro t may depart from the monopoly outcome in a volatile market (Rotemberg and Saloner, 1986). Introducing forward trading enables firms to gain the expected monopoly pro t for a broader range of parameters. In contrast to a deterministic market (Liski and Montero, 2006), trading forward in a volatile market may lead to an expected collusive pro t below the monopoly one.

Suggested Citation

  • Aichele, Markus F., 2014. "Forward trading and collusion of firms in volatile markets," University of Tübingen Working Papers in Business and Economics 75, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:75
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    References listed on IDEAS

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    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. Liski, Matti & Montero, Juan-Pablo, 2006. "Forward trading and collusion in oligopoly," Journal of Economic Theory, Elsevier, vol. 131(1), pages 212-230, November.
    5. Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
    6. Green, Richard & Le Coq, Chloé, 2010. "The length of contracts and collusion," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 21-29, January.
    7. Blaise Allaz, 1992. "Oligopoly, uncertainty and strategic forward transactions," Post-Print hal-00511812, HAL.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Industrial organization; Forward trading; Collusion; Energy Markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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