Objectives of an Imperfectly Competitive Firm: A Surplus Approach

Egbert Dierker, Hildegard Dierker () and Birgit Grodal
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Hildegard Dierker: https://econ.univie.ac.at

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We consider a firm acting strategically on behalf of its shareholders. 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 any 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 no 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. Thus, even if a firm does not know the preferences of its shareholders it can achieve S-efficiency by selecting a real wealth maximizing strategy.

JEL-codes: D21 D42 D43 D61 (search for similar items in EconPapers)
Date: 2000-11
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Working Paper: Objectives of an Imperfectly Competitive Firm: A Surplus Approach (2000)
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