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A general equilibrium analysis of corporate control and the stock market

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Abstract

This paper studies a general equilibrium model with an investor-controlled firm. Shareholders can vote on the firm’s production plan in an assembly if they dislike management’s decision. Prior to that they may trade shares on the stock market. Since stock market trades determine the distribution of votes, trading is strategic. There is always an equilibrium, where share trading leads to an ownership structure that supports competitive behavior. But there may also be equilibria, where monopolistic behavior prevails.

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Authors and Affiliations

  1. Dipartimento di matematica F. Casorati, Università degli Studi di Pavia, Via Ferrata 1, 27100, Pavia, Italy

    Stefano Demichelis

  2. Department of Economics and Finance, Vienna Graduate School of Finance, Institute for Advanced Studies, Vienna, Stumpergasse 56, 1060, Vienna, Austria

    Klaus Ritzberger

Authors
  1. Stefano Demichelis
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  2. Klaus Ritzberger
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Correspondence to Klaus Ritzberger.

Additional information

We would like to thank Larry Blume, Egbert Dierker, Yossef Spiegel, Alexander Stomper, an anonymous referee, and seminar and conference participants at Exeter, Vienna, Oxford, Copenhagen, Maastricht, Cape Town, and Konstanz, SAET 2007, EFMA 2007, and ESEM 2007.

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Demichelis, S., Ritzberger, K. A general equilibrium analysis of corporate control and the stock market. Econ Theory 46, 221–254 (2011). https://doi.org/10.1007/s00199-009-0511-8

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