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Equilibrium Involuntary Unemployment under Oligempory

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  • Kaas, Leo

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Madden, Paul

    (School of Economic Studies, Manchester University)

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Abstract

We show that equilibrium involuntary unemployment emerges in a multi-stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect equilibria involving unemployment. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the low wage firm out of both markets. Full employment equilibria may also exist, but only the involuntary unemployment equilibria are robust to decreasing returns.

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File URL: http://www.ihs.ac.at/publications/eco/es-68.pdf
File Function: First version, 1999
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 68.

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Length: 28 pages
Date of creation: Jun 1999
Date of revision:
Handle: RePEc:ihs:ihsesp:68

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Keywords: Involuntary unemployment; Multi-stage game; Imperfect competition;

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References

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  1. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-74, December.
  2. Larry E. Jones & R. E. Manuelli, 1987. "The Coordination Problem and Equilibrium Theories of Recessions," Discussion Papers 753, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-99, April.
  4. Madden, Paul & Silvestre, Joaquim, 1991. " Imperfect Competition and Fixprice Equilibria When Goods Are Gross Substitutes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(4), pages 479-94.
  5. Allen, Beth & Hellwig, Martin, 1986. "Bertrand-Edgeworth Oligopoly in Large Markets," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 175-204, April.
  6. L Kaas & P Madden, 2002. "Equilibrium Involuntary Unemployment Under Oligempory," Centre for Growth and Business Cycle Research Discussion Paper Series 21, Economics, The Univeristy of Manchester.
  7. Benassy, Jean-Pascal, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 217-34, April.
  8. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  9. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, vol. 44(4-6), pages 1069-1078, May.
  10. Klaus Ritzberger & Werner Güth, 1998. "On durable goods monopolies and the Coase-Conjecture," Review of Economic Design, Springer, vol. 3(3), pages 215-236.
  11. Heal, Geoffrey, 1981. "Rational rationing and increasing returns an example," Economics Letters, Elsevier, vol. 8(1), pages 19-27.
  12. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  13. Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
  14. Yanelle, Marie-Odile, 1989. "The strategic analysis of intermediation," European Economic Review, Elsevier, vol. 33(2-3), pages 294-301, March.
  15. BÖHM, Volker & MASKIN, Eric & POLEMARCHAKIS, Heraklis & POSTLEWAITE, Andrew, . "Monopolistic quantity rationing," CORE Discussion Papers RP -536, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Funk,Peter, 1991. "Bertrand and Walras euilibria in large economies," Discussion Paper Serie A 348, University of Bonn, Germany.
  17. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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Citations

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Cited by:
  1. V. Bhaskar & Ted To, 1999. "Oligopsony and the Distribution of Wages," Labor and Demography 9903003, EconWPA.
  2. L Kaas & P Madden, 2002. "Equilibrium Involuntary Unemployment under Oligempory," The School of Economics Discussion Paper Series 0213, Economics, The University of Manchester.
  3. L Kaas & P Madden, 2002. "Competitive Wage Cycles with Imperfect Output Market Competition," Centre for Growth and Business Cycle Research Discussion Paper Series 19, Economics, The Univeristy of Manchester.

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