Details

Autor(en) / Beteiligte

• Le Coq, Chloé
• Schwenen, Sebastian

Titel

Financial contracts as coordination device

Ist Teil von

• Journal of economics & management strategy, 2020-04, Vol.29 (2), p.241-259

Ort / Verlag

Hoboken, NJ: Wiley

Erscheinungsjahr

2020

Quelle

Wiley Online Library Journals Frontfile Complete

Beschreibungen/Notizen

• We study the use of financial contracts as bid-coordinating device in multi-unit uniform price auctions. Coordination is required whenever firms face a volunteer's dilemma in pricing strategies: one firm (the “volunteer") is needed to increase the market clearing price. Volunteering, however, is costly, as inframarginal suppliers sell their entire capacity whereas the volunteer only sells residual demand. We identify conditions under which signing financial contracts solves this dilemma. We test our framework exploiting data on contract positions by large producers in the New York power market. Using a Monte Carlo simulation, we show that the contracting strategy is payoff dominant and provide estimates of the benefits of such strategy.