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Macroeconomic Effects of Oligopolistic Competition with Wage Bargaining

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  • M. Correa Lopez
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    Abstract

    Modelling oligopoly in general equilibrium is about understanding the aggregate effects of the strategic behavior that nonatomistic agents may exhibit in their markets. Real-world economies appear to be characterized by (monopoly) power-endowed agents behaving strategically - namely, firms and unions. By abstracting from this behavior, we risk missing some important features of the macroeconomy. We develop a general equilibrium model of unionized oligopoly aimed at addressing this point. We evaluate the macroeconomic effects of supply-side shocks under alternative product and labor market structures. In addition, the micro foundations of the model capture an alternative channel for the development of strategic interactions among firms, unions and the monetary authority. This channel creates a transmission mechanism for real effects of monetary policy-related shocks, which we investigate. Finally, in the light of the predictions of the model, we discuss macroeconomic performance in Continental Europe over the 1990s.

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    Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 577.

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    Date of creation: 05 Mar 2004
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    Handle: RePEc:esx:essedp:577

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    1. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
    2. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
    3. Alex Cukierman & Francesco Lippi, 2000. "Labor Markets and Monetary Union; a Strategic Analysis," Temi di discussione (Economic working papers) 365, Bank of Italy, Economic Research and International Relations Area.
    4. Dastidar, Krishnendu Ghosh, 1997. "Comparing Cournot and Bertrand in a Homogeneous Product Market," Journal of Economic Theory, Elsevier, vol. 75(1), pages 205-212, July.
    5. Datta, Bipasa & Dixon, Huw, 2000. "Linear-homothetic preferences," Economics Letters, Elsevier, vol. 69(1), pages 55-61, October.
    6. Richard Arnott & Bruce Greenwald & Ravi Kanbur & Barry Nalebuff (ed.), 2003. "Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012057, December.
    7. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479, April.
    8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
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