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Endogenous Firm Objectives

Author

Listed:
  • Thomas Renstrom

    (University of Rochester)

  • Erkan Yalcin

    (Yeditepe University)

Abstract

We analyze the behavior 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. However, when they do, 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.

Suggested Citation

  • Thomas Renstrom & Erkan Yalcin, 2002. "Endogenous Firm Objectives," Industrial Organization 0204001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0204001
    Note: Type of Document - Tex; prepared on IBM PC; to print on HP;
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    References listed on IDEAS

    as
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    5. 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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Imperfect Competition; Shareholder Voting; Politico Economic Equilibrium;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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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