A general equilibrium analysis of corporate control and the stock market (Q623449)

The paper investigates the phenomenon of possible disagreement of a firm's shareholders with a usual management policy of profit maximisation when the firm's output influences prices of a non-competitive market. They can vote on the firm's production plan in an assembly if they dislike management's decision. This phenomenon is modelled in an artificial economy that comprises a finite number \(n\) of agents and a single firm. There are two commodities in the economy: the first is a composite one, \(l=0\), shared as the property of agents, and the second commodity, \(l=1\), is being produced by the firm in discrete units. Every agent has a part \(\vartheta_i\) of the firm's value such that \(\sum_{i=1}^n{\vartheta_i}=1\). The commodity \(0\) serves as the numeraire, and agent's preferences are quasi-linear in it. Each \(i\)-agent has a valuation \(v_i>0\) for one unit of the firm's product 1 and valuation zero for more than one unit. Agent \(i\)'s indirect utility function at income \(w_i\) and relative price \(p=p_1/p_0\) is \(w_i+\max\{0,v_i-p\}.\) Such preferences provide existence of a representative consumer (or a collective utility function). The commodity \(0\) can serve both as a consumption good and as a factor of production. The firm converts some units of good \(0\) into one unit of commodity 1. Prior to the firm's production decisions, investors can trade shares at the stock market. The paper provides an equilibrium criterion (``uncontestable'' share allocation) for the initial stage of strategic trading at the stock market. According to the criterion, competitive behavior should be associated with dispersed share ownership, and concentrated ownership tends to monopolistic behavior.