Forward Contracting and Collusion in Oligopoly

Juan-Pablo Montero

No 271, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

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.

JEL-codes: G13 L12 L13 L50 (search for similar items in EconPapers)
Date: 2004
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Published as "Forward Trading and Collusion in Oligopoly", Journal of Economic Theory, 2006.

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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:271

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