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On Monopolistic Competition and Involuntary Unemployment

Author

Listed:
  • Claude d'Aspremont
  • Rodolphe Dos Santos Ferreira
  • Louis-André Gérard-Varet

Abstract

In a simple temporary general equilibrium model, it is shown that, if the number of firms is small, imperfect price competition in the markets for goods may be responsible for the existence of unemployment at any given positive wage. In our examples involving two firms facing their "true" demand curves, total monopolistic labor demand remains bounded as the wage rate goes to zero, and unemployment prevails for a sufficiently large inelastic labor supply. In the competitive case total labor demand would go to infinity and intersect labor supply at a positive wage.

Suggested Citation

  • Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 1990. "On Monopolistic Competition and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 895-919.
  • Handle: RePEc:oup:qjecon:v:105:y:1990:i:4:p:895-919.
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    References listed on IDEAS

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    1. McKelvey, Richard D, 1975. "Policy Related Voting and Electoral Equilibrium," Econometrica, Econometric Society, vol. 43(5-6), pages 815-843, Sept.-Nov.
    2. Alesina, Alberto & Spear, Stephen E., 1988. "An overlapping generations model of electoral competition," Journal of Public Economics, Elsevier, pages 359-379.
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    5. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, pages 1-16.
    6. Alesina, Alberto & Spear, Stephen E., 1988. "An overlapping generations model of electoral competition," Journal of Public Economics, Elsevier, pages 359-379.
    7. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
    8. Cukierman, Alex, 1991. "Asymmetric Information and the Electoral Momentum of Public Opinion Polls," Public Choice, Springer, vol. 70(2), pages 181-213, May.
    9. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, pages 21-36.
    10. John Ledyard, 1984. "The pure theory of large two-candidate elections," Public Choice, Springer, vol. 44(1), pages 7-41, January.
    11. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    12. Wittman, Donald, 1977. "Candidates with policy preferences: A dynamic model," Journal of Economic Theory, Elsevier, vol. 14(1), pages 180-189, February.
    13. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-388, July.
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    Cited by:

    1. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1997. "General Equilibrium Concepts under Imperfect Competition: A Cournotian Approach," Journal of Economic Theory, Elsevier, pages 199-230.
    2. Mario Amendola & Jean-Luc Gaffard & Francesco Saraceno, 2004. "Wage Flexibility and Unemployment: The Keynesian Perspective Revisited," Scottish Journal of Political Economy, Scottish Economic Society, pages 654-674.
    3. Jianjun Miao & Pengfei Wang & Lifang Xu, 2016. "Stock market bubbles and unemployment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 273-307.
    4. Julien, Ludovic A., 2011. "Unemployment equilibrium and economic policy in mixed markets," Economic Modelling, Elsevier, vol. 28(4), pages 1931-1940, July.
    5. André Zylberberg, 1990. "Salaires et emploi dans une économie de partage," Économie et Prévision, Programme National Persée, pages 153-160.
    6. Maarten C.W. Janssen, 2006. "Microfoundations," Tinbergen Institute Discussion Papers 06-041/1, Tinbergen Institute.
    7. Foellmi, Reto & Oechslin, Manuel, 2010. "Market imperfections, wealth inequality, and the distribution of trade gains," Journal of International Economics, Elsevier, pages 15-25.
    8. repec:eee:reecon:v:71:y:2017:i:4:p:729-739 is not listed on IDEAS
    9. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    10. Murata, Yasusada, 2002. "Rural-urban interdependence and industrialization," Journal of Development Economics, Elsevier, pages 1-34.
    11. Foellmi, Reto & Zweimüller, Josef, 2006. "Mass Consumption, Exclusion and Unemployment," CEPR Discussion Papers 5824, C.E.P.R. Discussion Papers.
    12. repec:spo:wpecon:info:hdl:2441/6763 is not listed on IDEAS
    13. Pasquale Commendatore & Ingrid Kubin, 2009. "Dynamic effects of regulation and deregulation in goods and labour markets," Oxford Economic Papers, Oxford University Press, pages 517-537.
    14. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    15. Amedeo Panci, 1999. "Multiple equilibria: coordination failure and endogenous cycle," Working Papers 30, University of Rome La Sapienza, Department of Public Economics.
    16. d’Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2017. "The Dixit–Stiglitz economy with a ‘small group’ of firms: A simple and robust equilibrium markup formula," Research in Economics, Elsevier, pages 729-739.
    17. Claude d’Aspremont & Rodolphe Dos Santos Ferreira, 2016. "Oligopolistic vs. monopolistic competition: Do intersectoral effects matter?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 299-324.
    18. Rankin, Neil, 1995. "Money in Hart's model of imperfect competition," European Journal of Political Economy, Elsevier, vol. 11(3), pages 557-575, September.

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