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A non-walrasian general equilibrium model with monopolistic competition and bargaining

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  • Licandro, Omar

Abstract

In a general equilibri~m framework, this paper tries to reproduce an important stilized fact of real economies: firms set prices under demand uncertainty while consumption decisions are taken when prices are already known. Under these conditions, there is place for a quantity rationing equilibrium since preferences are revealed when prices are already set and market-clearing can not be attained through changes in prices. "Demand heterogeneity" is introduced in the model and related to "demand uncertainty": when firms set prices, their own market shares are not known with certainty, even if aggregate demand and the distribution of market shares are common knowledge. The main properties of the aggregate equilibrium are: (a) some markets are demand constrained while other markets are supply constrained, (b) aggregate production is smaller than aggregate demand and full-employment output, (c) there is (involuntary) unemployment, and (d) effective demand is greater than notional demand, implying a positive spill-over effect.

Suggested Citation

  • Licandro, Omar, 1992. "A non-walrasian general equilibrium model with monopolistic competition and bargaining," UC3M Working papers. Economics 5818, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:5818
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    References listed on IDEAS

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    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 529-538.
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    Cited by:

    1. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
    2. Licandro, Omar, 1993. "Demand uncertainy and unemployement in a monopoly union model," UC3M Working papers. Economics 2896, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Croix, David de la & Licandro, Omar, 1993. "Underemployment and capital irreversivility in a unionized overlaping generations economy," UC3M Working papers. Economics 2903, Universidad Carlos III de Madrid. Departamento de Economía.

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