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Non‐linear revenue evaluation

Author

Listed:
  • Alex Dickson
  • Ian A. MacKenzie
  • Petros G. Sekeris

Abstract

In this article, we investigate different market structures where decision makers are incentivized by both profit and revenue. Our innovation is that we consider managers that evaluate revenue in a non‐linear way, exhibiting diminishing marginal utility. This implies that incremental changes in revenue—for example, due to demand shocks—generate production choices that depend on the existing revenue base of the firm. We show that this intuitively appealing extension reverses some conventional results: decision makers may increase output in the presence of negative demand shocks, which depends on the concavity of their utility function with respect to revenue.

Suggested Citation

  • Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2022. "Non‐linear revenue evaluation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(5), pages 487-505, November.
    • Handle: RePEc:bla:scotjp:v:69:y:2022:i:5:p:487-505
    DOI: 10.1111/sjpe.12303
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    References listed on IDEAS

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