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Imperfect competition, general equilibrium and unemployment

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  • Gersbach, Hans
  • Schniewind, Achim

Abstract

We analyze whether different learning abilities of firms with respect to general equilibrium effects lead to different levels of unemployment. We consider a general equilibrium model, where firms in one sector compete a la Cournot and a real wage rigidity leads to unemployment. If firms consider only partial equilibrium effects when choosing quantities, the observation of general equilibrium feedback effects will lead to repeated quantity adjustments until a steady state is reached. When labor is mobile across industries, unemployment in the steady state is higher than when all general equilibrium effects are incorporated at once. The opposite result is true if labor is immobile.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 5 (May)
Pages: 1381-1398

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:5:p:1381-1398

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  1. Markusen, James R. & Venables, Anthony J., 1986. "Trade Policy with Increasing Returns and Imperfect Competition: Contradictory Results from Competing Assumptions," CEPR Discussion Papers 120, C.E.P.R. Discussion Papers.
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  5. JASKOLD GABSZEWICZ, Jean & VIAL, Jean-Philippe, . "Oligopoly "à la Cournot" in a general equilibrium analysis," CORE Discussion Papers RP -106, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers, Queen's University, Department of Economics 513, Queen's University, Department of Economics.
  7. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
  8. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 383-406, May.
  9. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  10. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  11. Gersbach, Hans & Schniewind, Achim, 2005. "Awareness of General Equilibrium Effects and Unemployment," CEPR Discussion Papers 5012, C.E.P.R. Discussion Papers.
  12. Saint-Paul, Gilles, 1994. "Searching for the Virtues of the European Model," CEPR Discussion Papers 950, C.E.P.R. Discussion Papers.
  13. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  14. Gersbach, Hans & Schniewind, Achim, 2001. "Learning of General Equilibrium Effects and the Unemployment Trap," IZA Discussion Papers 254, Institute for the Study of Labor (IZA).
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