Endogenous Firm Objectives

Renström, Thomas I and Erdal Yalcin

No 3361, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyse the behaviour 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. When they do, however, 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.

Keywords: Imperfect competition; Shareholder voting (search for similar items in EconPapers)
JEL-codes: D21 G34 L21 (search for similar items in EconPapers)
Date: 2002-05
New Economics Papers: this item is included in nep-cfn and nep-ind
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Citations: View citations in EconPapers (2)

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