Profit maximization mitigates competition
AbstractWe consider oligopolistic markets in which the notion of shareholders'utility is well-defined and compare the Bertrand-Nash equilibria in case of utility maximization with those under the usual profit maximization hypothesis. Our main result states that profit maximization leads to less price competition than utility maximization. Since profit maximization tends to raise prices, it may be regarded as beneficial for the owners as a whole. Moreover, if profit maximization is a good proxy for utility maximization, then there is no need for a general equilibrium analysis that takes the distribution of profits among consumers fully into account and partial equilibrium analysis suffices.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 7 (1995)
Issue (Month): 1 ()
Note: Received: July 8, 1994; revised version December 23, 1994
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Egbert DIERKER & Birgit GRODAL, 1994. "Profit Maximization Mitigates Competition," Vienna Economics Papers vie9405, University of Vienna, Department of Economics.
- Egbert Dierker & Birgit Grodal, 1994. "Profit Maximization Mitigates Competition," Discussion Papers 94-15, University of Copenhagen. Department of Economics.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- Renström, Thomas I & Yalcin, Erkan, 2002. "Endogenous Firm Objectives," CEPR Discussion Papers 3361, C.E.P.R. Discussion Papers.
- Tarun Sabarwal, 2004. "A Consistent Firm Objective When Markets are Incomplete: Profit Maximization," Econometric Society 2004 North American Summer Meetings 141, Econometric Society.
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1079, Queen's University, Department of Economics.
- Abbas Ali & Abdulrahman Al-Aali & Abdullah Al-Owaihan, 2013. "Islamic Perspectives on Profit Maximization," Journal of Business Ethics, Springer, vol. 117(3), pages 467-475, October.
- Stefano Demichelis & Klaus Ritzberger, 2011. "A general equilibrium analysis of corporate control and the stock market," Economic Theory, Springer, vol. 46(2), pages 221-254, February.
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- Bo Rasmussen, 1996. "Imperfectly competitive factor markets and price normalization," Journal of Economics, Springer, vol. 63(2), pages 125-138, June.
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