Publication:
Strategic interaction between futures and spot markets

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2003-01
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Elsevier
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Abstract
We study an oligopolistic industry where firms are able to sell in a futures market at infinitely many moments prior to the spot market. A kind of Folk-theorem is established: any outcome between perfect competition and Cournot can be sustained in equilibrium. We then find that the Cournot outcome can be sustained by a renegotiation-proof equilibrium. However, this is not true for the competitive outcome. Furthermore, only the monopolistic outcome is renegotiation-proof if firms can buy and sell in the futures market. These results suggest, contrary to existing literature, that the introduction of futures markets may have an anti-competitive effect.
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Futures markets, Cournot competition, Collusion
Bibliographic citation
Journal of Economic Theory (2003), 108 (1), 141-151