Objectives of an Imperfectly Competitive Firm: A Surplus Approach
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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|Date of creation:||Oct 2000|
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