Abstract
In this article we investigate different market structures where decision makers are incentivized by both profit and revenue. Our innovation is that we consider managers that evaluate revenue in a non-linear way, exhibiting diminishing marginal utility. This implies that incremental changes in revenue-for example due to demand shocks-generate production choices that depend on the existing revenue base of the firm. We show that this intuitively appealing extension reverses some conventional results: decision makers may increase output in the presence of negative demand shocks, which depends on the concavity of their utility function with respect to revenue.
Original language | English |
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Pages (from-to) | 487-505 |
Number of pages | 19 |
Journal | Scottish Journal of Political Economy |
Volume | 69 |
Issue number | 5 |
Early online date | 29 Sept 2021 |
DOIs | |
Publication status | Published - 30 Nov 2022 |
Keywords
- oligopoly
- non-profit maximization
- delegation
- exogenous demand shocks
- market access costs