Profit maximization mitigates competition

Dierker, Egbert and Grodal, Birgit (1996) Profit maximization mitigates competition. Economic Theory, 7 (1), pp. 139-160. DOI: 10.1007/BF01212187

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We consider oligopolistic markets in which the notion of shareholders' utility is well-defined and compare the Bertrand-Nash equilibria in case of utility maximization with those under the usual profit maximization hypothesis. Our main result states that profit maximization leads to less price competition than utility maximization. Since profit maximization tends to raise prices, it may be regarded as beneficial for the owners as a whole. Moreover, if profit maximization is a good proxy for utility maximization, then there is no need for a general equilibrium analysis that takes the distribution of profits among consumers fully into account and partial equilibrium analysis suffices. (authors' abstract)

Item Type: Article in Academic Journal
Date Deposited: 28 Jan 2015 08:27
Last Modified: 01 Apr 2016 14:17
DOI: 10.1007/BF01212187
ISSN: Print ISSN: 0938-2259, Online ISSN: 1432-0479

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