The impact of forward contracting on tacit collusion: Experimental evidence

This article reports the results of a laboratory experiment designed to examine the strategic impact of forward contracting on market power in infinitely repeated duopolies. Theory predicts that forward contracting can not only increase the likelihood of collusion but can also serve as a credible commitment device that minimizes firms' incentives to deviate from collusion. Focusing on strategic choices, the experimental design investigates the impact of forward contracting on collusion and contrasts it to the effect of adding one additional competitor. While the findings do not provide evidence that a forward market results in more collusion, the findings suggest that forward contracting can reinforce collusion when firms tacitly collude.