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- Le Coq, Chloé, et al.
(author)
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Do forward markets enhance competition?
- 2006
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In: Journal of economic behavior & organization. - : Elsevier B.V. - 1879-1751 .- 0167-2681. ; 61:3, s. 415-431
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Journal article (peer-reviewed)abstract
- Hedging risks is an important rationale for forward trading. However, Allaz and Vila [Allaz, B., Vila, J.-L., 1993. Cournot competition, forwards markets and efficiency. Journal of Economic Theory 59, 1–16] show that oligopolists may also have a strategic motive to sell forward. Moreover, in their model forward markets increase competitiveness between firms, raising consumer surplus and efficiency. In this study, we examine this theoretical result in a controlled laboratory environment and investigate how the trading institution and the number of firms affect competition. Our findings support the main comparative-static predictions but also suggest that, when compared to the increase in competitive pressure due to entry, the competition-enhancing effect of a forward market is weaker than predicted.
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