Download this Paper Open PDF in Browser

Portfolio Diversification, Market Power, and the Theory of the Firm

43 Pages Posted: 20 Jul 2016 Last revised: 3 Sep 2017

José Azar

University of Navarra, IESE Business School

Date Written: August 23, 2017

Abstract

This paper develops a model of firm behavior in the context of oligopoly and portfolio diversification by shareholders. The management of each firm proposes a strategic plan to shareholders, and is evaluated based on the strategic plan. This leads to internalization and aggregation of shareholder objectives, including holdings in other firms, and situations where consumers/workers are also shareholders. When all shareholders hold market portfolios, firms that are formally separate behave as a single firm. I introduce new indices that capture the internalization effects from consumer/worker control, and discuss implications for antitrust, stakeholder theory, and the boundaries of the firm.

Keywords: Common Ownership, Theory of the Firm, MHHI, Oligopoly, Stakeholder Theory, Firm Boundaries

JEL Classification: L41, L10, G34

Suggested Citation

Azar, José, Portfolio Diversification, Market Power, and the Theory of the Firm (August 23, 2017). Available at SSRN: https://ssrn.com/abstract=2811221 or http://dx.doi.org/10.2139/ssrn.2811221

José Azar (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Paper statistics

Downloads
442
Rank
54,173
Abstract Views
2,391