@inbook{aaf279ea66cb46f2880b13dee67ca00b,
title = "The Influence of Yield-Dependent Trading Costs on Pricing and Production Planning under Supply Uncertainty",
abstract = "We examine the role of the yield-dependent trading cost structure on the optimal decisions regarding the selling price and production quantity for an agricultural firm that operates under supply uncertainty. The firm leases farm space, but its realized crop yield fluctuates due to weather conditions, diseases, etc. After harvest, the firm has three options: convert its crop supply to the final product, purchase additional supplies from other growers, and sell some (or all) of its crop supply in the open market without converting to the finished product. We examine the problem both from a risk-neutral and from a risk-averse perspective. The chapter makes three sets of contributions: (1) the use of a static cost exaggerates the initial investment in the farm space and the expected profit significantly, and the actual value gained from a secondary purchase option is lower under the yield-dependent cost structure, (2) a sufficiently risk-averse firm can benefit from the presence of a fruit futures market when it does not purchase fruit futures under static costs. Thus, fruit futures can add value in the presence of yield-dependent trading costs, and (3) contrary to earlier findings, the firm does not always commit to a lower initial quantity (leased farm space) under risk aversion and it might lease a larger farm space under risk aversion.",
keywords = "Fruit futures, Pricing, Risk aversion, Supply uncertainty, Yield-dependent trading costs",
author = "Burak Kazaz and Scott Webster",
note = "Publisher Copyright: {\textcopyright} 2022, Springer Nature Switzerland AG.",
year = "2022",
doi = "10.1007/978-3-030-81423-6_6",
language = "English (US)",
series = "Springer Series in Supply Chain Management",
publisher = "Springer Nature",
pages = "87--102",
booktitle = "Springer Series in Supply Chain Management",
address = "United States",
}