Do forward markets enhance competition?

• 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.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

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