Endogenous Firm Objectives

Thomas Renstrom and Erkan Yalcin
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Thomas Renstrom: University of Rochester
Erkan Yalcin: Yeditepe University

Industrial Organization from University Library of Munich, Germany

Abstract: We analyze the behavior 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. However, when they do, 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; Politico Economic Equilibrium (search for similar items in EconPapers)
JEL-codes: D21 G34 L21 (search for similar items in EconPapers)
Date: 2002-04-15
Note: Type of Document - Tex; prepared on IBM PC; to print on HP;
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0204001

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