Monopoly Externalities and Non-Profit Maximising Firms

David Kelsey and Frank Milne

No 113, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper provides a theory of a monopolist in general equilibrium. We assume that the firm's decisions are based on the preferences of shareholders and/or other stake-holders. We show that the monopolist will charge less than the profit-maximising price, since shareholders suffer part of the cost of a price rise if they are also consumers. If price discrimination is possible, the resulting equilibrium will be Pareto efficient. We use the model to examine the effects of increasing stake-holder representation in firms. A related result shows that a non-profit firm will produce fewer negative externalities.

Date: 2002-08-29
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