Abstract
Allaz and Vila (1993) show that oligopolists have a strategic motive to sell forward. In their model the possibility of forward trading increases competitiveness between firms, raising consumer surplus and welfare. In this study we examine this prediction in a controlled laboratory environment. We investigate how and to what extent the market institution and the number of firms affect competition, in theory and in our experimental markets. Our findings support the main comparative-static predictions of the model but also suggest that the competition-enhancing effect of a forward market is weaker than predicted. In contrast, entry has a stronger competition-enhancing effect.