Access to Commitment Devices Reduces Investment Incentives in Oligopoly

Veronika Grimm () and Gregor Zoettl

No 25, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: In this paper we analyze incentives to invest in capacity prior to a sequence of Cournot spot markets with varying demand. We compare equilibrium investment in the absence and in presence of the possibility to trade on forward markets. We find that the access to strategic devices (such as forward contracts as analyzed by Allaz and Vila (1993), or, equivalently strategic delegation as analyzed by Fershtman and Judd (1987) or Vickers (1985)) prior to spot market competition reduces equilibrium investments.

Keywords: Investment incentives; commitment devices; oligopoly; demand fluctuations; forward markets (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2006-06-06
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (6)

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