A lot of businesses actually do hedge their inputs, this is not a crazy idea I've just come up with. For some industries it's de rigeur (jewelers typically hedge even the value of their inventory and WIP), in others it seems to be a matter of preference (jet fuel for airlines). That's perhaps the single biggest justifying reason for the existence of commodity futures in the first place -- because producers and consumers want to reduce price risk. Agreeing on a fixed future price achieves that goal for both parties. Why would either the producer or the consumer need to pay anything to reach such an agreement? Why would it reduce expectation profits for either party? The futures markets simply provide a low-friction venue.
I agree that lots of businesses do hedge their inputs! Just as lots of people buy insurance. Reducing catastrophic downside risk of something is indeed worth a loss of expected value. But insurance has negative expected value, just like hedging their inputs. If you believe that it's costless or near-costless to hedge your inputs, you should do it literally everywhere to everything that you possibly can, and anyone who doesn't is just leaving money on the ground for you to pick up.
And while lots of businesses do hedge their inputs to some degree, it is not the case that everyone does it to the maximal possible extent.
> If you believe that it's costless or near-costless to hedge your inputs, you should do it literally everywhere to everything that you possibly can
... no? Just because you've eliminated price risk doesn't mean you've eliminated holistic market risk. For example, suppose you're an airline: if fuel prices go up, and your competitors are not hedged, it's no big deal if you're not hedged, because everyone just increases ticket prices. But suppose you ARE hedged, and your competitors aren't, and fuel prices go down, and your competition cuts ticket prices, and... uh, you're screwed, because 1) you have a bunch of fuel locked in at the higher price, and 2) nobody wants to buy your tickets with the old fuel surcharges. So you're forced to take a loss, and the hedge hasn't actually reduced business risk in this scenario. It tends to depend on the game-theoretic context whether hedging commodity inputs actually reduces systematic risk.
Seriously, hedging price risk in commodities is nearly costless, decisions not to hedge almost never have to do with the actual cost of the hedge. In the real world where things are much more complicated than a toy example, many airlines do some hedging, with the aim of reducing sensitivity of profits to short-run volatility in oil, rather than trying to truly eliminate exposure to fuel prices. But that does come as a "free lunch".
