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Equilibrium Investment Is Reduced If We Allow For Forward Contracts

Author

Listed:
  • 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.

Suggested Citation

  • Veronika Grimm & Gregor Zoettl, 2006. "Equilibrium Investment Is Reduced If We Allow For Forward Contracts," Working Papers. Serie AD 2006-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2006-05
    as

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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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    References listed on IDEAS

    as
    1. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(3), pages 365-388.
    2. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    4. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    5. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.

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    More about this item

    Keywords

    Investment incentives; demand fluctuations; forward markets;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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