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On The Existence of A Cournot Equilibrium With Endogenous Income

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  • Laurence Lasselle
  • Serge Svizzero

Abstract

We consider the general equilibrium of an economy with Cournot competition in the product market. In this framework, firms endowed with market power are assumed to know the true or objective demand function. However, depending on the economy's structure, the demand function varies with the size of income feedback effects. Two cases are studied depending on whether the consumers' income is considered by firms as exogenous (no feedback effects) or indogenous (feedback effects) to their actions. We establish a relationship between both cases, that is to say an expression for the demand for goods including feedback effects in terms of the demand without feedback effects. This relationship is useful regarding the conditions ensuring the existence of a Cournot equilibrium and also the features of this equilibrium. We illustrate the latter point through macroeconomic implications such as the debate, full employment vs involuntary unemployment.

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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0012.

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Date of creation: Feb 2000
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Handle: RePEc:san:crieff:0012

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Keywords: feedback effects; price-elasticity;

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  1. Lasselle, Laurence & Svizzero, Serge, 2001. "The Impossibility of Underemployment with More Than One Product Market," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 157-65, January.
  2. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(1), pages 109-38, February.
  3. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(1), pages 85-98, January.
  4. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-41, March.
  5. Lasselle, Laurence S & Svizzero, Serge A, 2002. " Involuntary Unemployment in Imperfectly Competitive General Equilibrium Models," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 16(4), pages 487-507, September.
  6. Christian Schultz, 1989. "The Impossibility of "Involuntary Unemployment" in an Overlapping Generations Model with Rational Expectations," Discussion Papers 89-18, University of Copenhagen. Department of Economics, revised Oct 1989.
  7. Silvestre, Joaquim, 1990. "There May Be Unemployment When the Labour Market Is Competitive and the Output Market Is Not," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(402), pages 899-913, September.
  8. Kaas, Leo, 1998. "Multiplicity of Cournot Equilibria and Involuntary Unemployment," Journal of Economic Theory, Elsevier, Elsevier, vol. 80(2), pages 332-349, June.
  9. Laurence Lasselle & Serge Svizzero, 1998. "Involuntary Unemployment and Income Feedback Effects," CRIEFF Discussion Papers, Centre for Research into Industry, Enterprise, Finance and the Firm 9823, Centre for Research into Industry, Enterprise, Finance and the Firm.
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