John Hatfield from UT Austin will present "Facilitating Collusion with Spot-Price Contracting" (joint work with Richard Lowery).
We investigate the competitive effects of spot-price contracting, in which a buyer and
seller contract to transact at a future date at the price prevailing in that market (the
“spot price”) at that future date; such contracts are ubiquitous in the beef-processing
industry. We show that spot-price contracting can facilitate collusion: When such
contracts are available, firms can maintain monopsonistic prices at much lower market
concentrations than in standard models of Bertrand competition, and some degree of
non-competitive pricing can be maintained for any market concentration. We also show
that the effect of differentiation on collusion in this setting is ambiguous: Monopsonistic
pricing is most easily maintained at either high or low levels of differentiation, while
more competitive pricing arises at intermediate levels of differentiation.