Forward trading and collusion in supply functions
No 19-003, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research
This paper studies the effect of forward contracts on the stability of collusion among firms, competing in supply functions on the spot market. A forward market can increase the range of discount factors which allow to sustain collusion. On the contrary, collusion is destabilised when a potential deviator sells a significant amount forward. Results do not depend on the type (financial or physical) of contract fulfilment and are robust to different levels of demand uncertainty. As a policy implication, the study finds that liquid and anonymous forward markets are incompatible with collusion.
Keywords: forward trading; collusion; supply function equilibrium (search for similar items in EconPapers)
JEL-codes: C73 D43 L13 G13 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:19003
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