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.
|Number of pages||19|
|Journal||Scottish Journal of Political Economy|
|Early online date||29 Sept 2021|
|Publication status||Published - 30 Nov 2022|
- non-profit maximization
- exogenous demand shocks
- market access costs