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A Model of Shareholder Discounts

Author

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  • Xiangkang Yin

    (Department of Economics and Finance, La Trobe University)

Abstract

Many companies supplying consumption goods and services provide their shareholders with price discounts when they consume them. Although this practice is not uncommon it has not been analysed to date. This paper presents a simple model describing shareholder discounts and consequent market equilibrium, which resembles some features of two-part tariffs. The welfare analysis shows that discounts definitely increase major shareholders' wealth in contrast to the benchmark case of uniform pricing. Their effects on consumers and the whole society are generally ambiguous but certain sufficient conditions ensuring definite conclusions are given. It is also found that the equilibrium outcome of shareholder discount is Pareto inefficient.

Suggested Citation

  • Xiangkang Yin, 1999. "A Model of Shareholder Discounts," Working Papers 1999.04, School of Economics, La Trobe University.
    • Handle: RePEc:ltr:wpaper:1999.04
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    Cited by:

    1. Christina M. L. Kelton & Robert P. Rebelein, 2007. "A General‐Equilibrium Analysis of Public Policy for Pharmaceutical Prices," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 285-318, April.
    2. Yin, Xiangkang, 2004. "Two-part tariff competition in duopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 799-820, June.

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