Imperfect Competition and Corporate Governance¤

This paper studies corporate governance when a ̄rm faces imperfect competition. We derive ̄rms' decisions from utility maximisation by individuals. This reduces the usual monopoly distortion. We ̄nd that corporate governance can e®ect the equilibrium in the product (or input) markets. This enables us to endogenise the objective function of the ̄rm. If the ̄rm cannot commit not to change its constitution, we ̄nd a Coase-like result where all market power is lost in the limit. The model can be used to examine the e®ects of encouraging stakeholder representation. Address for Correspondence David Kelsey, Department of Economics, The University of Birmingham, Birmingham, B15 2TT, ENGLAND ¤We would like to thank Chiaki Hara, Norman Ireland, Abhinay Muthoo and participants in a seminars at the universities of Birmingham, Essex, Leeds and York and ESEM Venice 2002 for comments and suggestions.