4 ms·

Kinda of, but investor (especially in private companies) absolutely set the level of margin they require from the corporation the CEO's job is hit that margin

by syshum 6y ago

Kinda of, but investor (especially in private companies) absolutely set the level of margin they require from the corporation the CEO's job is hit that margin with in reason, and if not develop a plan to hit that margin If the company is unable to hit the target long enough that is when companies shut down, so sure you can say "that is only true with perfectly inelastic goods but you fail to understand that moving your capital to other things is always an option If a company sells X goods and can only ever get a investor return of 1% on their capital no investor is going to say in that business, they will sell off the company assets and take their investment to greener pastures. Same is true if the investors demand a 8-10% return and are only ever getting 5% on their investment, the will divest from the company and move on

matheusaf 6y ago
Yes, I agree that there will be pressure on managers from investors, and they will try to recover their margins in several ways, but if they try to recover it from price increases beyond what the tax incidence suggests, their margins should be lower - and not higher, so they are unlikely to do that. Now, the other effect you suggested is interesting, there are firms that exit the market because the margins are unable to give the returns that investors expect. However, this is factored in the supply curve, particularly in the long-run supply curve, so the microeconomic model still stands.