Forward trading and collusion of firms in volatile markets

Markus F. Aichele

No 75, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

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.

Keywords: Industrial organization; Forward trading; Collusion; Energy Markets (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:75

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