Non-linear revenue evaluation

Alex Dickson, Ian A. MacKenzie, Petros G. Sekeris

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
JournalScottish Journal of Political Economy
Early online date29 Sep 2021
DOIs
Publication statusE-pub ahead of print - 29 Sep 2021

Keywords

  • oligopoly
  • non-profit maximization
  • delegation
  • exogenous demand shocks
  • market access costs

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