Forward Trading and Collusion in Supply Functions

31 Pages Posted: 19 Feb 2019

See all articles by Nikolas M. Wölfing

Nikolas M. Wölfing

Centre for European Economic Research (ZEW)

Date Written: 2019

Abstract

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

JEL Classification: C73, D43, L13, G13

Suggested Citation

Wölfing, Nikolas M., Forward Trading and Collusion in Supply Functions (2019). ZEW - Centre for European Economic Research Discussion Paper No. 19-003, Available at SSRN: https://ssrn.com/abstract=3336525 or http://dx.doi.org/10.2139/ssrn.3336525

Nikolas M. Wölfing (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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