A Dynamic Model of the Competitive Firm with a Forward Market

This article brings together and extends several strands of literature concerning the behaviour of the competitive firm operating under (spot) price uncertainty. Specifically, the article analyses a dynamic model in which the firm can hold inventories and can sell in the forward market (at a certain price). It shows that both the existence of inventories and the existence of a forward market encourages the firm to increase its output. Comparative static propositions are derived, and the results related to previous findings in the earlier literature.