Why did the Dutch East India Co. outperform the British East India Co.? —A theoretical explanation based on the objective of the firm and limited liability—
AbstractWe examine the relationship between the objective of a monopolist and limited liability. We establish that the owners of a monopolistic firm are better off to choose profit maximization rather than sales maximization under both unlimited and limited liability. This is consistent with the fact that the Dutch East India Company, whose objective was profit maximization, was better off in the seventeenth century than the British East India Company, whose objective was sales maximization. We also show that a monopolist should choose to organize as a limited liability entity regardless of its objective.
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Bibliographic InfoPaper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 96.
Length: 17 pages
Date of creation: Dec 2012
Date of revision: Dec 2012
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limited liability; firm objective; managerial incentives; monopoly;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-22 (All new papers)
- NEP-COM-2012-12-22 (Industrial Competition)
- NEP-HIS-2012-12-22 (Business, Economic & Financial History)
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