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Objectives of an Imperfectly Competitive Firm: A Surplus Approach

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We consider a firm acting strategically on behalf of its shareholders. 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 any 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 no 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. Thus, even if a firm does not know the preferences of its shareholders it can achieve S-efficiency by selecting a real wealth maximizing strategy.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0007.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0007.

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Date of creation: Nov 2000
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Handle: RePEc:vie:viennp:0007

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Web page: http://www.univie.ac.at/vwl

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Cited by:
  1. Jean-Marc Bonnisseau & Oussama Lachiri, 2004. "On the objective of firms under uncertainty with stock markets," Cahiers de la Maison des Sciences Economiques b04122, Université Panthéon-Sorbonne (Paris 1).
  2. Dagobert Brito & Juan Rosellón, 2011. "Lumpy Investment in Regulated Natural Gas Pipelines: An Application of the Theory of the Second Best," Networks and Spatial Economics, Springer, vol. 11(3), pages 533-553, September.
  3. Bonnisseau, J.-M. & Florig, M., 2000. "Non-Existence of Duopoly Equilibria : A Simple Numerical Example," Papiers d'Economie Mathématique et Applications 2000.90, Université Panthéon-Sorbonne (Paris 1).
  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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