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Modelling Policy Issues in a World of Imperfect Competition
Author(s) -
Dierker Egbert,
Grodal Birgit
Publication year - 1998
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00095
Subject(s) - economics , imperfect competition , oligopoly , microeconomics , imperfect , market power , normalization (sociology) , maximization , order (exchange) , general equilibrium theory , shareholder , cournot competition , monopoly , corporate governance , linguistics , philosophy , finance , sociology , anthropology
General equilibrium theory constitutes a sound basis for the discussion of policy issues if firms do not have market power. However, if firms influence prices strategically, the concept of profits loses its meaning due to the price normalization problem. Hence, it is unclear how to model the behavior of oligopolistic firms. In order to provide a conceptual foundation for the analysis of policy issues in the case of imperfect competition, we discuss ways to formulate the objective of a strategic firm. In particular, we investigate the concept of real wealth maximization that is based on profits as well as on shareholders' aggregate demand.