eprintid: 16648 rev_number: 19 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/01/66/48 datestamp: 2015-03-16 14:53:58 lastmod: 2021-04-02 15:49:33 status_changed: 2018-04-10 13:10:33 type: article succeeds: 15735 metadata_visibility: show creators_name: Léautier, Thomas-Olivier creators_name: Rochet, Jean-Charles creators_idrefppn: 121302369 creators_idrefppn: 03062620X creators_affiliation: Toulouse School of Economics (IAE, IDEI, CRM) creators_affiliation: University of Zurich, Institute of Banking and Finance, Switzerland. Toulouse School of Economics (IDEI) title: On the strategic value of risk management ispublished: pub subjects: subjects_ECO abstract: This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where firms that are rendered “risk averse” by financial frictions decide on and commit to their hedging strategies before their product market strategies. We find that commitment to hedging modifies the pricing and production strategies of firms. This strategic effect is channeled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders' “risk aversion”. It has opposite effects depending on the nature of product market competition: commitment to hedging toughens quantity competition while it softens price competition. Finally, not committing to the hedging position can never be an equilibrium outcome: committing is always a best response to non-committing. In the Hotelling model, committing is a dominant strategy for all firms. date: 2014-11 date_type: published publisher: Elsevier id_number: 10.1016/j.ijindorg.2014.07.006 official_url: http://tse-fr.eu/pub/28844 faculty: tse divisions: tse divisions: CRM keywords: Risk Management keywords: Price and Quantity Competition language: en has_fulltext: FALSE doi: 10.1016/j.ijindorg.2014.07.006 subjectsJEL: JEL_G32 subjectsJEL: JEL_L13 view_date_year: 2014 full_text_status: none publication: International Journal of Industrial Organization volume: vol. 37 pagerange: 153-169 refereed: TRUE issn: 0167-7187 oai_identifier: oai:tse-fr.eu:28844 harvester_local_overwrite: oai_set harvester_local_overwrite: volume harvester_local_overwrite: issn harvester_local_overwrite: faculty harvester_local_overwrite: site harvester_local_overwrite: divisions harvester_local_overwrite: publisher harvester_local_overwrite: id_number harvester_local_overwrite: doi harvester_local_overwrite: creators_idrefppn oai_lastmod: 2018-01-15T13:23:02Z oai_set: tse oai_set: ut1c site: ut1 citation: Léautier, Thomas-Olivier and Rochet, Jean-Charles (2014) On the strategic value of risk management. International Journal of Industrial Organization, vol. 37. pp. 153-169.