Democracy and competition: Vertical differentiation and labor in a general equilibrium model

Abstract

We consider a general equilibrium model with vertical preferences and one or two firms, where workers and consumers are differentiated, respectively, by their sensitivity to effort and their preference for quality. The question in this paper is whether a decentralized choice through majority vote would lead to more or less competition. We compare the duopoly and the monopoly cases from the viewpoint of each individual, then we deduce the choice of the majority. We prove that, under concentrated ownership (where owners have a null density), duopoly is always preferred by the majority; while under egalitarian ownership (where firms are equally shared by all the population), the choice of the majority depends on the relative size of workers' and consumers' segments.

Note on Democracy and Competition: The Role of Ownership Structure in a General Equilibrium Model with Vertical Preferences

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This note considers a general equilibrium model where individuals are potentially consumers, workers, and shareholders. It extends the results obtained previously by Kahloul et al (2017) with extreme ownership structures on the majority vote between Monopoly and Duopoly, to the case of any proportion of shareholders in the population.We prove that Duopoly is preferred when non-shareholders constitute a majority of the population. Otherwise, the majority vote depends on the proportion of shareholders and the dispersion of the individuals with respect to their intensity of preference for quality relative to their sensitivity to effort.

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“…This note considers a general equilibrium model where individuals are potentially consumers, workers, and shareholders. It extends the results obtained previously by Kahloul et al (2017) with extreme ownership structures on the majority vote between Monopoly and Duopoly, to the case of any proportion of shareholders in the population.…”

“…This paper is an extension of the work of Kahloul et al (2017) who address the same question and use the same model with two extreme ownership structures:…”

“…Thus, we have two groups of citizens: shareholders and non-shareholders. The ownership structures examined in Kahloul et al (2017) appear now as two particular cases of our model.…”

“…Concurrence et démocratie: une note sur le rôle de la structure de propriété dans un modèle d'équilibre général avec des préférences verticales Dans cette note, onétudie un modèle d'équilibre général où les individus sont potentiellement des consommateurs, des travailleurs et des actionnaires. On généralise le travail de Kahloul et al (2017) qui détermine le résultat d'un vote majoritaire entre Monopole et Duopole pour deux structures de propriété particulières extrêmes, en considérant une proportion quelconque d'actionnaires dans la population.…”