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Endogenous Firm Objectives

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Author Info
Renström, Thomas I
Yalcin, Erkan
Abstract

We analyse the behaviour of a monopolistic firm in general equilibrium when the firm’s decision are taken through shareholder voting. We show that, depending on the underlying distribution, rational voting may imply overproduction as well as underproduction, relative to the efficient level. Any initial distribution of shares is an equilibrium, if individuals do not recognize their influence on voting when trading shares. When they do, however, and there are no short-selling constraints the only equilibrium is the efficient one. With short-selling constraints typically underproduction occurs. It is not market power itself causing underproduction, but the inability to perfectly trade the rights to market power.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3361.

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Date of creation: May 2002
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Handle: RePEc:cpr:ceprdp:3361

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Keywords: imperfect competition; shareholder voting;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Roemer, John E, 1993. " Would Economic Democracy Decrease the Amount of Public Bads?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(2), pages 227-38.
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  2. Dierker, Egbert & Grodal, Birgit, 1996. "Profit Maximization Mitigates Competition," Economic Theory, Springer, vol. 7(1), pages 139-60, January.
  3. Sadanand, Asha B & Williamson, John M, 1991. "Equilibrium in a Stock Market Economy with Shareholder Voting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 1-35, February. [Downloadable!] (restricted)
  4. Petra Geraats & Hans Haller, 1998. "Shareholders' choice," Journal of Economics, Springer, vol. 68(2), pages 111-135, June. [Downloadable!] (restricted)
  5. Kelsey, David & Milne, Frank, 1996. "The existence of equilibrium in incomplete markets and the objective function of the firm," Journal of Mathematical Economics, Elsevier, vol. 25(2), pages 229-245. [Downloadable!] (restricted)
  6. Bohm Volker, 1994. "The Foundation of the Theory of Monopolistic Competition Revisited," Journal of Economic Theory, Elsevier, vol. 63(2), pages 208-218, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Willenbockel, 2005. "The Price Normalisation Problem in General Equilibriun Models with Oligopoly Power: An Attempt at Perspective," GE, Growth, Math methods 0505002, EconWPA. [Downloadable!]
  2. Frank Milne & David Kelsey, 2005. "Externalities, Monopoly and the Objective Function of the Firm," Working Papers 1078, Queen's University, Department of Economics. [Downloadable!]
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