Strategic forward contracting in vertical markets

• Autor(a) principal: Pedroso, Guilherme Fernandes
• Data de Publicação: 2018
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/25893
• topic: Domínio/Área Científica::Ciências Sociais::Economia e Gestão

There is a widespread belief that the introduction of forward contracts bene ts rms if they compete in prices and harms them if they compete in quantities. The aim of this paper is analyze if this idea still holds in a vertical industry and, in order to do so, we build a model where forward contracts are introduced in a vertical industry where a manufacturer sells an input to two price setting retailers. We assume that rstly the input price is decided through bargaining. Then, the retailers decide on the amount of forward contracts they want to engage in and, nally, they set their prices (or quantities) in the spot market and the contracts are realized. We show that, under certain conditions, introducing a round of forward contracting might actually be detrimental to the retailers when they compete in prices and bene cial when competing in quantities.