Two-Period Duopolies with Forward Markets

We experimentally consider a dynamic multi-period Cournot duopoly with a simultaneous option to manage financial risk and a real option to delay supply. The first option allows players to manage risk before uncertainty is realized, while the second allows managing risk after realization. In our setting, firms face a strategic dilemma: They must weigh the advantages of dealing with risk exposure against the disadvantages of higher competition. In theory, firms make strategic use of the hedging component, enhancing competition. Our experimental results support this theory, suggesting that hedging increases competition and negates duopoly profits even in a simultaneous setting.