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Demand Uncertainty, Vertical Structure and Risk


 发布日期:2015-3-31 9:58:00 来源:本站          字体:     浏览数:  打印

Yuanzhu Lu[1],   Hao Wang[2]

No. E2015002           March, 2015

Abstract: Consider a market of a non-storable commodity with uncertain aggregate demand. Both upstream producers and downstream retailers are price-takers. The production sector has increasing marginal costs and the retail sector has constant marginal costs. Linear retail prices are determined before the demand uncertainty is resolved. It is shown that when firms are risk neutral, the vertical structure of the industry does not influence the equilibrium final prices. However, it does influence the profit variations. The upstream and downstream profits under vertical separation are negatively correlated with each other. Hence the separation exaggerates the risk faced by the firms.

Keywords: Demand Uncertainty; Electricity; Non-Storable Goods; Vertical Integration

JEL Classification: L22, L51, L94

No.E2015002.pdf



[1]Central University of Finance and Economics, Beijing, China.

[2]Correspondence author, National School of Development, Peking University, Beijing, China.

 
 
 
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