Production and risk management in a multi-period duopoly under demand uncertainty
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In: International Journal of Trade and Global Markets, Vol. 6, No. 4, 2013, p. 384-405.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Production and risk management in a multi-period duopoly under demand uncertainty
AU - Pelster, Matthias
PY - 2013
Y1 - 2013
N2 - This paper considers the corporate hedging and production decisions in a Cournot duopoly under demand uncertainty with (μ, σ)-preferences. We are the first to consider the duopoly under uncertainty with a hedging opportunity in a dynamic setting. The paper is concerned with the effects of the production and hedging decision on future interactions and on equilibrium in the duopoly. We show that firms indeed consider long-term ramifications of their decisions and thus models which only contemplate short-term utilities in a one period world neglect important repercussions. However, the sign of the effect on future decisions is ambiguous. Thus, future research should set the focus on dynamic settings when considering risk management questions in imperfect markets. In a multi-period setting with storage the separation theorem does not hold, but a variation of the full hedge theorem is valid.
AB - This paper considers the corporate hedging and production decisions in a Cournot duopoly under demand uncertainty with (μ, σ)-preferences. We are the first to consider the duopoly under uncertainty with a hedging opportunity in a dynamic setting. The paper is concerned with the effects of the production and hedging decision on future interactions and on equilibrium in the duopoly. We show that firms indeed consider long-term ramifications of their decisions and thus models which only contemplate short-term utilities in a one period world neglect important repercussions. However, the sign of the effect on future decisions is ambiguous. Thus, future research should set the focus on dynamic settings when considering risk management questions in imperfect markets. In a multi-period setting with storage the separation theorem does not hold, but a variation of the full hedge theorem is valid.
KW - Management studies
KW - price risk
KW - corporate hedging
KW - dynamic setting
KW - storage
KW - multi-period duopoly
KW - production management
KW - risk management
KW - demand uncertainty
U2 - 10.1504/IJTGM.2013.056739
DO - 10.1504/IJTGM.2013.056739
M3 - Journal articles
VL - 6
SP - 384
EP - 405
JO - International Journal of Trade and Global Markets
JF - International Journal of Trade and Global Markets
SN - 1742-7541
IS - 4
ER -