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Equilibrium Investment Is Reduced If We Allow For Forward Contracts

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Author Info

  • Veronika Grimm

    ()
    (Universidad de Alicante)

  • Gregor Zoettl

    ()
    (CORE, Université catholique de Louvain)

Abstract

In this paper we analyze incentives to invest in capacity prior to asequence of Cournot spot markets with varying demand. We compareequilibrium investment in the absence and in presence of the possibility to tradeon forward markets. We find that the possibility to trade forwards reducesequilibrium investments.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2006-05.pdf
File Function: Fisrt version / Primera version, 2006
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-05.

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Length: 29 pages
Date of creation: Feb 2006
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-05

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Keywords: Investment incentives; demand fluctuations; forward markets;

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  1. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  2. Paul L. Joskow, 2001. "California's Electricity Crisis," NBER Working Papers 8442, National Bureau of Economic Research, Inc.
  3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  4. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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