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The impact of forward contracting on tacit collusion: Experimental evidence

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  • Schubert, Jens
Abstract
This article reports the results of a laboratory experiment designed to examine the strategic impact of forward contracting on market power in infinitely repeated duopolies. Theory predicts that forward contracting can not only increase the likelihood of collusion but can also serve as a credible commitment device that minimizes firms’ incentives to deviate from collusion. Focusing on strategic choices, the experimental design investigates the impact of forward contracting on collusion and contrasts it to the effect of adding one additional competitor. While the findings do not provide evidence that a forward market results in more collusion, the findings suggest that forward contracting can reinforce collusion when firms tacitly collude.

Suggested Citation

  • Schubert, Jens, 2015. "The impact of forward contracting on tacit collusion: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 109-123.
    • Handle: RePEc:eee:jeborg:v:119:y:2015:i:c:p:109-123
    DOI: 10.1016/j.jebo.2015.07.016
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    References listed on IDEAS

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    Cited by:

    1. David P. Brown & Andrew Eckert, 2018. "Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(1), pages 101-137, February.
    2. Cheng, Xiong & Lv, Xin & Li, Xianshan & Zhong, Hao & Feng, Jia, 2023. "Market power evaluation in the electricity market based on the weighted maintenance object," Energy, Elsevier, vol. 284(C).
    3. Caleb Cox & Arzé Karam & Matthias Pelster, 2022. "Two-Period Duopolies with Forward Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 29-62, February.

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    More about this item

    Keywords

    Cournot oligopoly; Collusion; Experiments; Forward contracting; Stackelberg;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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