Renstrom, T. and Yalcin, E. (2003) 'Endogenous firm objectives.', Journal of public economic theory., 5 (1). pp. 67-94.
We analyze the behavior of a monopolistic firm in general equilibrium when the firm's decisions 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.
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|Publisher Web site:||http://dx.doi.org/10.1111/1467-9779.00122|
|Date accepted:||No date available|
|Date deposited:||No date available|
|Date of first online publication:||January 2003|
|Date first made open access:||No date available|
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