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Objectives of an Imperfectly Competitive Firm: A Surplus Approach

Author

Listed:
  • Egbert Dierker

    (University of Vienna)

  • Hildegard Dierker

    (University of Vienna)

  • Birgit Grodal

    (University of Copenhagen)

Abstract

We consider a firm acting strategically on behalf of its shareholder. 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 nay 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 not 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. The concavity assumption is shown to be independent of the commodity bundle used to normalize prices and measure wealth.

Suggested Citation

  • Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2000. "Objectives of an Imperfectly Competitive Firm: A Surplus Approach," CIE Discussion Papers 2000-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:2000-06
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    Cited by:

    1. Dagobert Brito & Juan Rosellón, 2011. "Lumpy Investment in Regulated Natural Gas Pipelines: An Application of the Theory of the Second Best," Networks and Spatial Economics, Springer, vol. 11(3), pages 533-553, September.
    2. Bonnisseau, Jean-Marc & Lachiri, Oussama, 2004. "On the objective of firms under uncertainty with stock markets," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 493-513, August.
    3. Jean-Marc Bonnisseau & Michael Florig, 2005. "Non-existence of Duopoly Equilibria: A Simple Numerical Example," Journal of Economics, Springer, vol. 85(1), pages 65-71, July.
    4. Camelia Bejan, 2008. "The objective of a privately owned firm under imperfect competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(1), pages 99-118, October.

    More about this item

    Keywords

    imperfect competition; firms' objectives; real wealth maximization; S-efficent; surplus;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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