Strategic Investment, Forward Markets and Competition

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Dokumentart: Aufsatz
Date: 2014-09-22
Source: University of Tübingen Working Papers in Economics and Finance ; No. 76
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Investition
Other Keywords: Wettbewerb
Industrial Organization
Strategic Investment
Forward Trading
Cournot Competition
Energy Markets
License: Publishing license excluding print on demand
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I model the strategic interaction between firms, that face decisions on investment, forward contracts and spot market quantities. For an investment decision that takes place after firms have contracted forward but before firms compete on the spot market (medium term investment), competition becomes fierce. Thus, the efficiency gains from forward trading found by Allaz and Villa (1993) still are present. However, for an investment that takes place before firms contract forward (long term investment), competition becomes rather weak. When investment matters, from a welfare point of view the desirability of forward trading critically depends on the structure of decision making.

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