Competitive Forward and Spot Trading Under Yield Uncertainty

Lusheng Shao, Derui Wang and Xiaole Wu

Foundations and Trends(R) in Technology, Information and Operations Management, 2023, vol. 16, issue 3-4, 214-228

Abstract: Agricultural producers face significant yield uncertainty which can cause unpredictable outputs and volatile prices of agricultural commodities. They usually trade those commodities not only in a spot market but also in a forward market to manage price uncertainty. In this section, we develop a game theoretical model to study competing firms’ production decisions in the planting season and trading behaviors in the forward and spot markets. The model also allows us to examine the impact of yield uncertainty and the existence of the forward market on the equilibrium outcomes. We find some counterintuitive results that an increase in yield risk may increase firms’ equilibrium profits and decrease the spot price volatility. A comparison between the models with and without a forward market reveals that the firms’ profits decrease but the spot price volatility increases when there is a forward market. Finally we show that a higher yield risk mitigates the role of the forward market but a higher yield correlation enhances it.

Keywords: Supply Chain Management; Contracting in Supply Chains; Competitive Operations (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1561/0200000106-3 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:fnttom:0200000106-3

Access Statistics for this article

More articles in Foundations and Trends(R) in Technology, Information and Operations Management from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().