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Commodity supply chain network equilibrium under bilateral risk hedging
Journal article   Peer reviewed

Commodity supply chain network equilibrium under bilateral risk hedging

Xiaoyang Zhou, Nana Zhao, Pingping Feng, Ding Zhang and Benjamin Lev
European journal of operational research, v 331(3), pp 770-789
16 Jun 2026
DOI: https://doi.org/10.1016/j.ejor.2025.09.025
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Abstract

Bilateral hedging Commodity supply chain network Competition Price correlation Risk management
•Interactions between operational and financial decisions under bilateral hedging are revealed.•Risk management on both supply and demand sides within commodity supply chains is integrated.•Bilateral spot-futures price correlations are classified into three distinct types.•The competitive dynamics of hedging adoption are uncovered through realistic data simulations. Firms in the commodity industry are not only faced with increasingly fierce competition, but are also exposed to price risks on both supply and demand sides. This paper examines operational and futures trading decisions for raw materials and finished products by classifying bilateral spot-futures price correlations into three types (same-side, parallel, and cross) and proposing a two-stage stochastic supply chain network equilibrium model. The analytical results under duopolistic competition show that the bilateral hedging strategy can provide a firm with an advantage in increasing market share and profits when integrated with operational decisions. Further numerical analysis reveals that this advantage can either amplify or diminish depending on price correlations. Moreover, to analyze multi-competitor scenarios, we conduct simulations across varying market structures using realistic data. Our results show that widespread adoption of bilateral hedging intensifies competition and erodes its advantage. When a firm enhances the completeness of its hedging strategy, this adversely affects all other market participants. This paper presents the first systematic study of how competitive operational and financial decisions interact under bilateral risk hedging.

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Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Management
Operations Research & Management Science
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