Access to Commitment Devices Reduces Investment Incentives in Oligopoly
AbstractIn 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.
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Bibliographic InfoPaper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 25.
Date of creation: 06 Jun 2006
Date of revision:
Investment incentives; commitment devices; oligopoly; demand fluctuations; forward markets;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-17 (All new papers)
- NEP-COM-2006-06-17 (Industrial Competition)
- NEP-MIC-2006-06-17 (Microeconomics)
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