Customer-Controlled Firms: The Case of Stock-Exchanges

In many industries there are firms whose owners are also customers. They have contrasting interests: they get more utility as the firm's profits increase, and the prices of the good decreases as their private consumer surplus increases. An interesting example is the stock exchange industry. This paper shows that a customer-owned monopolist always achieves first-best social outcome, but in customer-controlled firms, profits are not necessarily maximized and minority shareholders are damaged.