MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES
This article develops a multi-period production model to examine the optimal dynamic behaviour of a large monopolistic value-maximizing firm that manipulates its valuation as well as the price of its output. In the pre-commitment equili...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | en_US |
| Published: |
2003
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/1808 |
| _version_ | 1826189515566350336 |
|---|---|
| author | Basak, Suleyman Pavlova, Anna |
| author_facet | Basak, Suleyman Pavlova, Anna |
| author_sort | Basak, Suleyman |
| collection | MIT |
| description | This article develops a multi-period production model to examine the optimal dynamic
behaviour of a large monopolistic value-maximizing firm that manipulates its valuation
as well as the price of its output. In the pre-commitment equilibrium the firm's output
and labour demand are decreased, while the price of consumption is increased, as
compared with its competitive counterpart. Profits and the firm's value can, however,
be either increased or decreased. In the time-consistent equilibrium the firm's output
and labour demand are increased, while the price of consumption is decreased. More
strikingly, the profits in every period are decreased, and may even go negative, while
the firm's value can be either lower or higher than in the competitive benchmark. In the
continuous-time limit, while the pre-commitment equilibrium retains its basic
discrete-time structure, the time-consistent equilibrium tends to the limit of zero profits
and hence zero firm's valu |
| first_indexed | 2024-09-23T08:16:04Z |
| format | Working Paper |
| id | mit-1721.1/1808 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T08:16:04Z |
| publishDate | 2003 |
| record_format | dspace |
| spelling | mit-1721.1/18082019-04-09T17:41:34Z MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES Basak, Suleyman Pavlova, Anna Monopoly asset pricing theory general equilibrium short-sighted time-consistency This article develops a multi-period production model to examine the optimal dynamic behaviour of a large monopolistic value-maximizing firm that manipulates its valuation as well as the price of its output. In the pre-commitment equilibrium the firm's output and labour demand are decreased, while the price of consumption is increased, as compared with its competitive counterpart. Profits and the firm's value can, however, be either increased or decreased. In the time-consistent equilibrium the firm's output and labour demand are increased, while the price of consumption is decreased. More strikingly, the profits in every period are decreased, and may even go negative, while the firm's value can be either lower or higher than in the competitive benchmark. In the continuous-time limit, while the pre-commitment equilibrium retains its basic discrete-time structure, the time-consistent equilibrium tends to the limit of zero profits and hence zero firm's valu 2003-01-27T20:45:56Z 2003-01-27T20:45:56Z 2003-01-27T20:45:56Z Working Paper http://hdl.handle.net/1721.1/1808 en_US MIT Sloan School of Management Working Paper;4234-01 453900 bytes application/pdf application/pdf |
| spellingShingle | Monopoly asset pricing theory general equilibrium short-sighted time-consistency Basak, Suleyman Pavlova, Anna MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title | MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title_full | MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title_fullStr | MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title_full_unstemmed | MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title_short | MONOPOLY POWER AND THE FIRM'S VALUATION: A DYNAMIC ANALYSIS OF SHORT VERSUS LONG-TERM POLICIES |
| title_sort | monopoly power and the firm s valuation a dynamic analysis of short versus long term policies |
| topic | Monopoly asset pricing theory general equilibrium short-sighted time-consistency |
| url | http://hdl.handle.net/1721.1/1808 |
| work_keys_str_mv | AT basaksuleyman monopolypowerandthefirmsvaluationadynamicanalysisofshortversuslongtermpolicies AT pavlovaanna monopolypowerandthefirmsvaluationadynamicanalysisofshortversuslongtermpolicies |