Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, February 19, 2013

Forward trading and collusion of firms in volatile markets

Posted by D. Daniel Sokol

Markus F. Aichele, Tubingen discusses Forward trading and collusion of firms in volatile markets.

ABSTRACT: Assuming deterministic demand Liski and Montero (2006) show that forward trading is able to facil- itate collusion. We present a more concise model incorporating the main reason for forward trading: Uncertainty. In general, uctuations make collusion harder to sustain (Rotemberg and Saloner, 1986). However, using forward contracts, rms are able to decrease the incentives to deviate from a collusive agreement even in very volatile markets. This makes collusive strategies more sustainable and decreases social welfare.

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