TY - JOUR

T1 - Implications of financial transaction costs on the real economy

T2 - A note

AU - Pelster, Matthias

PY - 2014/3/31

Y1 - 2014/3/31

N2 - This note studies the influence of a financial transaction tax and transaction costs on the optimal production and hedging strategies of a duopoly. Firms are exposed to demand uncertainty that leads to price risk and can hedge their risk exposure on a forward market. However, the forward position is subject to transaction costs. We investigate two settings: first, we explore the Cournot duopoly with a simultaneous hedging opportunity; second, we analyze the case with a sequential forward market. We show that in both settings transaction costs lead to a less competitive market and that prices increase as the producers limit their output.

AB - This note studies the influence of a financial transaction tax and transaction costs on the optimal production and hedging strategies of a duopoly. Firms are exposed to demand uncertainty that leads to price risk and can hedge their risk exposure on a forward market. However, the forward position is subject to transaction costs. We investigate two settings: first, we explore the Cournot duopoly with a simultaneous hedging opportunity; second, we analyze the case with a sequential forward market. We show that in both settings transaction costs lead to a less competitive market and that prices increase as the producers limit their output.

KW - Economics, empirical/statistics

KW - price risk

KW - Hedging

KW - transaction cost

KW - financial transaction tax

KW - duopoly

U2 - 10.5709/ce.1897-9254.135

DO - 10.5709/ce.1897-9254.135

M3 - Journal articles

VL - 8

SP - 113

EP - 118

JO - Contemporary Economics

JF - Contemporary Economics

SN - 2084-0845

IS - 1

ER -