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

44 Pages Posted: 17 May 2017

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR; ECGI

Date Written: January 30, 2017

Abstract

This paper develops a model of firm behavior in the context of oligopoly and portfolio diversification by shareholders. Competition for shareholder votes among potential managers seeking corporate office leads to internalization and aggregation of shareholder objectives, including shareholdings in other firms, and the fact that shareholders are consumers and workers of the firms. 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 (January 30, 2017). IESE Business School Working Paper No. 1170-E, Available at SSRN: https://ssrn.com/abstract=2969755 or http://dx.doi.org/10.2139/ssrn.2969755

José Azar (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

CEPR ( email )

London
United Kingdom

HOME PAGE: http://https://sites.google.com/site/joseazar/

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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