Léautier, Thomas-Olivier and Rochet, Jean-Charles (2013) On the strategic value of risk management. TSE Working Paper, n. 13-433, Toulouse

There is a more recent version of this item available.
[thumbnail of wp_tse_433.pdf]
Download (752kB) | Preview


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 risk averse firms decide on their hedging strategies before their product market strategies. We find that hedging modifies the pricing and production strategies of firms. This strategic effect is channelled 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: hedging toughens quantity competition while it softens price competition. Finally, if firms can decide not to commit on their hedging position, this can never be an equilibriumoutcome: committing is always a best response to non committing. In the Hotelling model, committing is a dominant strategy for all firms.

Item Type: Monograph (Working Paper)
Language: English
Date: 14 September 2013
Place of Publication: Toulouse
Uncontrolled Keywords: Risk Management, Price and Quantity Competition
JEL Classification: G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
L13 - Oligopoly and Other Imperfect Markets
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:38
Last Modified: 02 Apr 2021 15:48
OAI Identifier: oai:tse-fr.eu:27644
URI: https://publications.ut-capitole.fr/id/eprint/15735

Available Versions of this Item

View Item


Downloads per month over past year