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Strategic Pricing Behavior under Asset Value Maximization

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  • Shinn-Shyr Wang
  • Kyle W. Stiegert
  • Tirtha P. Dhar

Abstract

"In this paper, we empirically evaluate strategic pricing behavior and shareholder delegation of financial market objectives in the U.S. butter and margarine market. Shareholders are assumed to maximize the value of firm assets according to a certainty equivalent capital asset pricing model (CAPM). The delegation setup instructs managers to maximize a linear combination of firm profits and shareholder equity values. A key result from the analysis is that a test of financial market influences cannot be rejected in the product market for butter and margarine. Product market competition is best described using a conjectural variation model of industrial organization. Estimates of Lerner Indexes suggest significant market power and counterfactual simulations point toward significant biases in estimated Lerner Indexes when capital market dimensions are ignored or if the wrong market structure is assumed." Copyright (c) 2009 Canadian Agricultural Economics Society.

Suggested Citation

  • Shinn-Shyr Wang & Kyle W. Stiegert & Tirtha P. Dhar, 2010. "Strategic Pricing Behavior under Asset Value Maximization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(2), pages 151-170, June.
  • Handle: RePEc:bla:canjag:v:58:y:2010:i:2:p:151-170
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    Cited by:

    1. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Paper Series 496, University of Wisconsin, Agricultural and Applied Economics.
    2. Du, Ying & Stiegert, Kyle W., 2009. "Strategic Vertical Pricing in the U.S. Butter Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51712, Agricultural and Applied Economics Association.
    3. Hovhannisyan, Vardges & Stiegert, Kyle W. & Bozic, Marin, 2013. "On Endogeneity Of Retail Market Power In An Equilibrium Analysis: A Control Function Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149830, Agricultural and Applied Economics Association.

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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