We explore how risk aversion affects optimal capacity and pricing decisions within the economic setting of Banker and … Hughes (1994). A risk averse firm invests in fixed capacity and sets a product price, but can also purchase spot capacity at … that, contrary to common intuition, optimal capacity or list prices can increase under greater risk aversion depending on …

markets. The argument relies on two assumptions likely satisfied in practice, first that investors are risk averse and second … that markets in risk are incomplete. For the analysis, we develop a heuristic algorithm to solve large-scale stochastic … equilibrium models describing a competitive market with incomplete risk trading. Introduction of a capacity mechanism has an …