When do imperfectly competitive firms maximize profits? The lessons from a simple general equilibrium model with shareholders’ voting

Rim Lahmandi-Ayed and Didier Laussel ()

Journal of Mathematical Economics, 2018, vol. 78, issue C, 6-12

Abstract: We consider a general equilibrium model with vertical preferences, where workers and consumers are differentiated, respectively, by their sensitivity to effort and their intensity of preference for quality. We consider a monopoly of which the shares are owned by a fraction of the general population. The price is determined through a vote among all the shareholders. We identify necessary and sufficient conditions for (i) an absolute (relative) majority to vote for the profit maximizing price; (ii) an absolute (relative) majority to vote for a different price. We argue that the more concentrated the ownership the more likely it is that the firm charges the profit-maximizing price.

Keywords: General equilibrium; Profit maximization; Vertical preferences; Majority vote (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:78:y:2018:i:c:p:6-12

DOI: 10.1016/j.jmateco.2018.06.006

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