IDEAS home Printed from https://ideas.repec.org/p/aah/aarhec/2013-16.html
   My bibliography  Save this paper

An Industry-Equilibrium Analysis of the LeChatelier Principle

Author

Listed:
  • Peter Arendorf Bache

    (Department of Economics and Business, Aarhus University)

  • Anders Laugesen

    (Department of Economics and Business, Aarhus University)

Abstract

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
    as

    Download full text from publisher

    File URL: https://repec.econ.au.dk/repec/afn/wp/13/wp13_16.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    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. Wing Suen & Paul Tseng & Eugene Silberberg, 2000. "The LeChatelier principle: the long and the short of it," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(2), pages 471-476.
    3. Roberts, Kevin, 1999. "Rationality and the LeChatelier Principle," Journal of Economic Theory, Elsevier, vol. 87(2), pages 416-428, August.
    4. Milgrom, Paul & Roberts, John, 1996. "The LeChatelier Principle," American Economic Review, American Economic Association, vol. 86(1), pages 173-179, March.
    5. Koebel, Bertrand M. & Laisney, François, 2010. "The aggregate Le Chatelier Samuelson principle with Cournot competition," ZEW Discussion Papers 10-009, ZEW - Leibniz Centre for European Economic Research.
    6. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
    7. Silberberg, Eugene, 1974. "A revision of comparative statics methodology in economics, or, how to do comparative statics on the back of an envelope," Journal of Economic Theory, Elsevier, vol. 7(2), pages 159-172, February.
    8. 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)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, September.
    2. Jean‐Paul Chavas, 2006. "A Global Analysis of Constrained Behavior: The LeChatelier Principle “in the Large”," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 627-644, January.
    3. George Lady & James Quirk, 2010. "The global LeChatelier Principle and multimarket equilibria," Review of Economic Design, Springer;Society for Economic Design, vol. 14(1), pages 193-201, March.
    4. Alexandrov, Alexei & Bedre-Defolie, Özlem, 2017. "LeChatelier–Samuelson principle in games and pass-through of shocks," Journal of Economic Theory, Elsevier, vol. 168(C), pages 44-54.
    5. Lady, George M. & Quirk, James P., 2007. "The scope of the LeChatelier Principle," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 381(C), pages 351-365.
    6. Nocetti, Diego C., 2013. "The LeChatelier principle for changes in risk," Journal of Mathematical Economics, Elsevier, vol. 49(6), pages 460-466.
    7. Uttiya Paul & Tarun Sabarwal, 2023. "Directional monotone comparative statics in function spaces," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 153-169, April.
    8. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, Department of Economics and Business Economics, Aarhus University.
    9. Hennessy, David A., 1997. "The short- and long-run comparative statics of uncertainty," Economics Letters, Elsevier, vol. 55(3), pages 347-353, September.
    10. Anne-Christine Barthel, 2013. "Extending The Scope Of Monotone Comparative Statics Results," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201305, University of Kansas, Department of Economics, revised May 2013.
    11. Bertrand Koebel & François Laisney, 2014. "Aggregation with Cournot Competition: the Le Chatelier Samuelson Principle," Annals of Economics and Statistics, GENES, issue 115-116, pages 343-360.
    12. Julian Jamison, 2006. "The Le Chatelier Principle in lattices," Economics Bulletin, AccessEcon, vol. 3(2), pages 1-9.
    13. Riccardo Leoni, 2018. "Efficienza ed efficacia della contrattazione integrativa aziendale. Una rassegna della letteratura empirica italiana," Economia & lavoro, Carocci editore, issue 1, pages 131-170.
    14. Joshua S. Gans, 2023. "Artificial intelligence adoption in a competitive market," Economica, London School of Economics and Political Science, vol. 90(358), pages 690-705, April.
    15. Caputo, Michael R, 1999. "The Relationship between Two Dual Methods of Comparative Statics," Journal of Economic Theory, Elsevier, vol. 84(2), pages 243-250, February.
    16. Cenamor, Javier & Frishammar, Johan, 2021. "Openness in platform ecosystems: Innovation strategies for complementary products," Research Policy, Elsevier, vol. 50(1).
    17. Felipe A. Csaszar & Nicolaj Siggelkow, 2010. "How Much to Copy? Determinants of Effective Imitation Breadth," Organization Science, INFORMS, vol. 21(3), pages 661-676, June.
    18. Ariel Herbert FAMBEU, 2016. "Déterminants De L’Adoption Des Tic Dans Un Pays En Développement : Une Analyse Économétrique Sur Les Entreprises Industrielles Au Cameroun," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 43, pages 159-186.
    19. Massimiliano Mazzanti & Davide Antonioli & Susanna Mancinelli, 2012. "Environmental Innovations and Organizational Change: Is Complementarity a Firm’s Asset in the Green Economy?," Working Papers 201212, University of Ferrara, Department of Economics.
    20. Theodosios Anastasios Perifanis, 2022. "The Macroeconomic Results of Diligent Resource Revenues Management: The Norwegian Case," Energies, MDPI, vol. 15(4), pages 1-14, February.

    More about this item

    Keywords

    Complements; Substitutes; Monopolistic Competition; Industry Equilibrium; Labour Demand; LeChatelier Principle;
    All these keywords.

    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:

    Statistics

    Access and download statistics

    Corrections

    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.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.au.dk/afn/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.