Two-period duopolies with forward markets

Cox, C.; Karam, A.; Pelster, M.

doi:10.1007/s11151-021-09839-6

Two-period duopolies with forward markets

Cox, C.; Karam, A.; Pelster, M.

Authors

C. Cox

Dr Arze Karam arze.karam@durham.ac.uk
Assistant Professor

M. Pelster

Abstract

We experimentally consider a dynamic multi-period Cournot duopoly with a simultaneous option to manage financial risk and a real option to delay supply. The first option allows players to manage risk before uncertainty is realized, while the second allows managing risk after realization. In our setting, firms face a strategic dilemma: They must weigh the advantages of dealing with risk exposure against the disadvantages of higher competition. In theory, firms make strategic use of the hedging component, enhancing competition. Our experimental results support this theory, suggesting that hedging increases competition and negates duopoly profits even in a simultaneous setting.

Citation

Cox, C., Karam, A., & Pelster, M. (2022). Two-period duopolies with forward markets. Review of Industrial Organization, 60(1), 29-62. https://doi.org/10.1007/s11151-021-09839-6

Journal Article Type	Article
Acceptance Date	Aug 25, 2021
Online Publication Date	Sep 4, 2021
Publication Date	2022-02
Deposit Date	Oct 24, 2019
Publicly Available Date	Sep 4, 2022
Journal	Review of Industrial Organization
Print ISSN	0889-938X
Electronic ISSN	1573-7160
Publisher	Springer
Peer Reviewed	Peer Reviewed
Volume	60
Issue	1
Pages	29-62
DOI	https://doi.org/10.1007/s11151-021-09839-6
Public URL	https://durham-repository.worktribe.com/output/1287037

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Copyright Statement
This is a post-peer-review, pre-copyedit version of a journal article published in Review of Industrial Organization. The final authenticated version is available online at: https://doi.org/10.1007/s11151-021-09839-6