OLIGOPOLY, UNCERTAINTY AND STRATEGIC FORWARD TRANSACTIONS

We build a simple two-period model of an oligopoly producing a homogeneous good that can also be traded on a forward market. It is shown that in such a sequential model where forward decisions are taken prior to spot decisions, forward transactions can be an effective tool in the hands of noncompetitive producers. Whether the oligopolists end up long or short on the forward market depends on the interaction between strategy and risk hedging as well as on the type of conjectural variation that is assumed.