Strategic investment, forward markets and competition

Markus Aichele

No 76, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: 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.

Keywords: Industrial Organization; Strategic Investment; Forward Trading; Cournot Competition; Energy Markets (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:76

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