When do imperfectly competitive firms maximize profits? The lessons from a simple general equilibrium model with shareholders’ voting

Rim Lahmandi-Ayed (1) , Didier Laussel (2, 3)

1 LEGI - Laboratoire d'Économie et de Gestion Industrielle [Tunis]
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
3 AMSE - Aix-Marseille Sciences Economiques

We consider a general equilibrium model with vertical preferences, where workers and consumers are differentiated, respectively, by their sensitivity to effort and their intensity of preference for quality. We consider a monopoly of which the shares are owned by a fraction of the general population. The price is determined through a vote among all the shareholders. We identify necessary and sufficient conditions for (i) an absolute (relative) majority to vote for the profit maximizing price; (ii) an absolute (relative) majority to vote for a different price. We argue that the more concentrated the ownership the more likely it is that the firm charges the profit-maximizing price.

Keywords: General equilibrium; Profit maximization; Vertical preferences; Majority vote

Domains: Humanities and Social Sciences; Economics and Finance; Quantitative Finance [q-fin]

Rim Lahmandi-Ayed, Didier Laussel. When do imperfectly competitive firms maximize profits? The lessons from a simple general equilibrium model with shareholders’ voting. Journal of Mathematical Economics, 2018, 78, pp.6-12. ⟨10.1016/j.jmateco.2018.06.006⟩. ⟨hal-01991962⟩