Forward Trading and Collusion in Supply Functions

This paper studies the effect of forward contracts on the stability of collusion among firms, competing in supply functions on the spot market. A forward market can increase the range of discount factors which allow to sustain collusion. On the contrary, collusion is destabilised when a potential deviator sells a significant amount forward. Results do not depend on the type (financial or physical) of contract fulfilment and are robust to different levels of demand uncertainty. As a policy implication, the study finds that liquid and anonymous forward markets are incompatible with collusion.

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Wölfing, Nikolas (2019), Forward Trading and Collusion in Supply Functions, ZEW Discussion Paper No. 19-003, Mannheim.

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