Imperfect competition and corporate governance
Journal of Public Economic Theory
This paper studies the objective function of the firm in imperfectly competitive industries. If those involved in decisions are also consumers the usual monopoly distortion is reduced. In oligopolistic industries, this may give the firm a strategic advantage and hence, in the right circumstances, will increase profit. If the firm cannot commit not to change its constitution, we find a Coase-like result where all market power is lost in the limit. This enables us to endogenise the objective function of the firm. Finally we present a more abstract model of governance in the presence of market distortions.
Research in part support by ESRC grant RES-000-22-0650 and a grant from the British Academy.
Earlier version of this article dated April 17, 2006 issued as working paper. Final version published in Journal of Public Economic Theory available online at http://www3.interscience.wiley.com/
Journal of Public Economic Theory, 2008, 10 (6) p.1115-1141