This is similar to sales maximisation and may involve mergers and takeovers. Some firms may actually engage in predatory pricing which involves making a loss to force a rival out of business. the growth of supermarkets have lead to the demise of many local shops. Increasing market share may force rivals out of business.Managers prefer to work for bigger companies as it leads to greater prestige and higher salaries.Increased market share increases monopoly power and may enable the firm to put up prices and make more profit in the long run.This ‘ principal-agent‘ problem can be overcome, to some extent, by giving managers share options and performance related pay although in some industries it is difficult to measure performance.įirms often seek to increase their market share – even if it means less profit.not sacking them) This is the problem of separation between owners and managers. Therefore managers may create a minimum level of profit to keep the shareholders happy, but then maximise other objectives, such as enjoying work, getting on with other workers.This is a problem because although the owners may want to maximise profits, the managers have much less incentive to maximise profits because they do not get the same rewards, (share dividends).Those who own the company (shareholders) often do not get involved in the day to day running of the company. In many firms, there is a separation of ownership and control.However, in the real world, firms may pursue other objectives apart from profit maximisation. See more on: Profit maximisation Alternative aims of firms Higher profit enables higher salaries for workers.Higher profit makes the firm less vulnerable to takeover.More profit can be used to finance research and development.Usually, in economics, we assume firms are concerned with maximising profit. For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the long run.

Sometimes there is an overlap of objectives. Increased market share/market dominance.

Rationale and aim definition ib