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.