Competition with Forward Contracts: A Laboratories Analysis Motivated by Electricity Market Design

Jordi Brandts, Paul Pezanis-Christou and Arthur Schram
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Jordi Brandts: IAE - Institut d'Anàlisi Econòmica - UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona

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Abstract: We use experiments to study the efficiency effects of adding the possibility of forward contracting to a spot market. We focus on the strategic implications of a forward market and consider both quantity and supply function competition. In both cases we compare the effect of adding a contract market to the introduction of an additional competitor. We find that, as theory suggests, for both types of competition the introduction of a forward market significantly lowers prices. The combination of supply function competition with a forward market leads to high efficiency levels.

Keywords: Forward Markets; Experiments; Competition; Electricity Markets (search for similar items in EconPapers)
Date: 2006-08-06
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Published in The Economic Journal, 2006, 118 (525), pp.192-214. ⟨10.1111/j.1468-0297.2007.02109.x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00279255

DOI: 10.1111/j.1468-0297.2007.02109.x

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