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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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  1. 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.
  2. Heal, Geoffrey, 1981. "Rational rationing and increasing returns an example," Economics Letters, Elsevier, vol. 8(1), pages 19-27.
  3. 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.
  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.
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