Export production, hedging exchange rate risk: the duopoly case
This paper studies a Cournot duopoly in international trade so that the firms are exposed to exchange rate risk. A hedging opportunity is introduced by a forward market where the foreign currency can be traded on. We investigate two settings: First we assume that hedging and output decisions are taken simultaneously. We show that hedging is just done for risk managing reasons as it is not possible to use hedging strategically. In this setting the well-known separation result of the competitive firm holds if both firms have the hedging opportunity. In the second setting the hedging decisions are made before the output decisions. We show that hedging is used not only to manage the risk exposure but also as a strategic device. Furthermore we find that no separation result can be stated.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: 01062 Dresden|
Phone: ++49 351 463 2196
Fax: ++49 351 463 7739
Web page: http://www.tu-dresden.de/wiwi/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barbara J. Spencer & James A. Brander, 1982.
"Strategic Commitment with R&D: The Symmetric Case,"
516, Queen's University, Department of Economics.
- Burkhard Drees & Bernhard Eckwert, 2002.
"Welfare Effects of Transparency in Foreign Exchange Markets; The Role of Hedging Opportunities,"
IMF Working Papers
02/219, International Monetary Fund.
- Burkhard Drees & Bernhard Eckwert, 2003. "Welfare Effects of Transparency in Foreign Exchange Markets: the Role of Hedging Opportunities," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 453-463, 08.
- Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
- Collie, David, 1992.
"International Trade and Cournot Equilibrium: Existence, Uniqueness and Comparative Statics,"
Bulletin of Economic Research,
Wiley Blackwell, vol. 44(1), pages 55-66, January.
- Collie, D., 1990. "International Trade And Cournot Equilibrium: Existence, Uniqueness And Comparative Statics," The Warwick Economics Research Paper Series (TWERPS) 352, University of Warwick, Department of Economics.
- Eldor, Rafael & Zilcha, Itzhak, 1990. "Oligopoly, uncertain demand, and forward markets," Journal of Economics and Business, Elsevier, vol. 42(1), pages 17-26, February.
- Hughes, John S. & Kao, Jennifer L., 1997. "Strategic forward contracting and observability," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 121-133, November.
- Wong, Kit Pong, 2003. "Currency hedging with options and futures," European Economic Review, Elsevier, vol. 47(5), pages 833-839, October.
- von Ungern Sternberg, Thomas & von Weizsacker, C C, 1990.
"Strategic Foreign Exchange Management,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 38(4), pages 381-95, June.
- Thomas VON UNGERN-STERNBERG & C.C. VON WEIZSAECKER, 1989. "Strategic foreign exchange management," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 8905, Université de Lausanne, Faculté des HEC, DEEP.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- Asplund, Marcus, 2002.
"Risk-averse firms in oligopoly,"
International Journal of Industrial Organization,
Elsevier, vol. 20(7), pages 995-1012, September.
- Asplund, Marcus, 1995. "Risk-Averse Firms in Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 69, Stockholm School of Economics, revised 21 Sep 1999.
- Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
- Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x.
- Fishelson, Gideon, 1989. "Imperfect competition under uncertainty," Journal of Economics and Business, Elsevier, vol. 41(3), pages 253-263, August.
- Broll, Udo & Wong, Kit Pong & Zilcha, Itzhak, 1999. "Multiple Currencies and Hedging," Economica, London School of Economics and Political Science, vol. 66(264), pages 421-32, November.
When requesting a correction, please mention this item's handle: RePEc:zbw:tuddps:0608. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.