IDEAS home Printed from
   My bibliography  Save this paper

An Industry-Equilibrium Analysis of the LeChatelier Principle


  • Peter Arendorf Bache

    () (Department of Economics and Business, Aarhus University)

  • Anders Laugesen

    () (Department of Economics and Business, Aarhus University)


By considering firms operating in a perfectly- or monopolisticallycompetitive industry with free entry, we show that well-established results on the celebrated LeChatelier principle (LCP) do not extend into an endogenous competitive environment. For instance, labour demand may be more elastic in the short run (where capital is fixed) than in the long run even if capital and labour are either complements or substitutes in profits. This may also be true locally at a point of long-run equilibrium. A novel insight is that industry-equilibrium effects introduce an asymmetry such that the LCP may hold for wage increases but not for wage decreases. These results are important for the interpretation of estimated labour-demand elasticities. Finally, we show that the LCP may hold for the total industry labour demand in situations where it does not hold for the labour demand of individual firms.

Suggested Citation

  • Peter Arendorf Bache & Anders Laugesen, 2013. "An Industry-Equilibrium Analysis of the LeChatelier Principle," Economics Working Papers 2013-16, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2013-16

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. de Meza, David, 1981. ""Perverse" Long-run and Short-run Factor Demand Curves," Economica, London School of Economics and Political Science, vol. 48(191), pages 299-303, August.
    2. Roberts, Kevin, 1999. "Rationality and the LeChatelier Principle," Journal of Economic Theory, Elsevier, vol. 87(2), pages 416-428, August.
    3. Milgrom, Paul & Roberts, John, 1996. "The LeChatelier Principle," American Economic Review, American Economic Association, vol. 86(1), pages 173-179, March.
    4. Koebel, Bertrand M. & Laisney, François, 2010. "The aggregate Le Chatelier Samuelson principle with Cournot competition," ZEW Discussion Papers 10-009, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. John K.-H Quah, 2007. "The Comparative Statics of Constrained Optimization Problems," Econometrica, Econometric Society, vol. 75(2), pages 401-431, March.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Complements; Substitutes; Monopolistic Competition; Industry Equilibrium; Labour Demand; LeChatelier Principle;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2013-16. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.