Non-linear revenue evaluation

Dickson, Alex and MacKenzie, Ian A. and Sekeris, Petros G. (2021) Non-linear revenue evaluation. Scottish Journal of Political Economy. ISSN 0036-9292

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    Abstract

    In this article we investigate different market structures where decision makers are incentivized by both profit and revenue. Our innovation is that we consider managers that evaluate revenue in a non-linear way, exhibiting diminishing marginal utility. This implies that incremental changes in revenue-for example due to demand shocks-generate production choices that depend on the existing revenue base of the firm. We show that this intuitively appealing extension reverses some conventional results: decision makers may increase output in the presence of negative demand shocks, which depends on the concavity of their utility function with respect to revenue.

    ORCID iDs

    Dickson, Alex ORCID logoORCID: https://orcid.org/0000-0001-9386-9036, MacKenzie, Ian A. and Sekeris, Petros G.;