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

23 Pages Posted: 23 Dec 2007

See all articles by Jordi Brandts

Jordi Brandts

Instituto de Analisis Economico (CSIC) Barcelona

Paul Pezanis-Christou

U. of Adelaide School of Economics

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

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.

Suggested Citation

Brandts, Jordi and Pezanis-Christou, Paul and Schram, Arthur J. H. C., Competition with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design. The Economic Journal, Vol. 118, No. 525, pp. 192-214, January 2008, Available at SSRN: https://ssrn.com/abstract=1077989 or http://dx.doi.org/10.1111/j.1468-0297.2007.02109.x

Jordi Brandts (Contact Author)

Instituto de Analisis Economico (CSIC) Barcelona ( email )

UAB Campus
E-08193 Bellaterra
Spain

Paul Pezanis-Christou

U. of Adelaide School of Economics

Adelaide
Australia

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 18
CREED
Amsterdam 1018 WB
Netherlands
+31 (0)20 525 4293 (Phone)

HOME PAGE: http://www.fee.uva.nl/creed/PEOPLE/Arthurs.htm

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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