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Objectives of an Imperfectly Competitive Firm: A Surplus Approach

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Author Info

  • Egbert Dierker

    (University of Vienna)

  • Hildegard Dierker

    (University of Vienna)

  • Birgit Grodal

    (University of Copenhagen)

Abstract

We consider a firm acting strategically on behalf of its shareholder. The price normalization problem arising in general equilibrium models of imperfect competition can be overcome by using the concept of real wealth maximization. This concept is based on shareholders´ aggregate demand and does not involve nay utility comparisons. We explore the efficiency properties of real wealth maxima for the group of shareholders. A strategy is called S-efficient (S stands for shareholders) if there is not other strategy such that shareholders´new total demand can be redistributed in a way that all shareholders will be better off. Our main result states that the set of real wealth maximizing strategies coincides with the set of S-efficient strategies provided that shareholders´social surplus is concave. The concavity assumption is shown to be independent of the commodity bundle used to normalize prices and measure wealth.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2000-06.

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Length: 23 pages
Date of creation: Oct 2000
Date of revision:
Handle: RePEc:kud:kuieci:2000-06

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Keywords: imperfect competition; firms' objectives; real wealth maximization; S-efficent; surplus;

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Cited by:
  1. Dagobert L. Brito & Juan Rosellón, 2010. "Lumpy Investment in Regulated Natural Gas Pipelines: An Application of the Theory of the Second Best," Discussion Papers of DIW Berlin 1024, DIW Berlin, German Institute for Economic Research.
  2. Jean-Marc Bonnisseau & Michael Florig, 2005. "Non-existence of Duopoly Equilibria: A Simple Numerical Example," Journal of Economics, Springer, vol. 85(1), pages 65-71, 07.
  3. Bonnisseau, Jean-Marc & Lachiri, Oussama, 2004. "On the objective of firms under uncertainty with stock markets," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 493-513, August.
  4. Camelia Bejan, 2008. "The objective of a privately owned firm under imperfect competition," Economic Theory, Springer, vol. 37(1), pages 99-118, October.

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