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Forward trading and collusion of firms in volatile markets

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  • Aichele, Markus F.

Abstract

Assuming deterministic demand Liski and Montero (2006) show that forward trading is able to facilitate collusion. We present a more concise model incorporating the main reason for forward trading: Uncertainty. In general, fl uctuations make collusion harder to sustain (Rotemberg and Saloner, 1986). However, using forward contracts, firms are able to decrease the incentives to deviate from a collusive agreement even in very volatile markets. This makes collusive strategies more sustainable and decreases social welfare.

Suggested Citation

  • Aichele, Markus F., 2012. "Forward trading and collusion of firms in volatile markets," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62029, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc12:62029
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    References listed on IDEAS

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    1. 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.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
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    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.
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    7. Blaise Allaz, 1992. "Oligopoly, uncertainty and strategic forward transactions," Post-Print hal-00511812, HAL.
    8. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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