Forward trading and collusion in oligopoly
Name
2005-006.pdf
Size
254.51 KB
Format
Adobe PDF
Checksum (MD5)
11f5eff1830626fefafa1ddfccbb5df3
Author(s)
Liski, Matti
Montero, Juan-Pablo
Date Issued
2005
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series) ; 05-006WP.
Abstract
We consider an infinitely-repeated oligopoly in which at each period firms not only serve the spot market by either competing in prices or quantities but also have the opportunity to trade forward contracts. Contrary to the pro-competitive results of finite-horizon models, we find that the possibility of forward trading allows firms to sustain collusive profits that otherwise would not be possible. The result holds both for price and quantity competition and follows because (collusive) contracting of future sales is more effective in deterring deviations from the collusive plan than in inducing the previously identified pro-competitive effects.
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