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A Non-Walrasian General Equilibrium Model with Monopolistic Competition and Bargaining

  • Licandro, Omar

    (Universidad Carlos III de Madrid)

In a general equilibrium framework, this paper tries to reproduce an important stylized fact of real economies : firms set prices under demand uncertainty while consumption decisions are taken when prices are already known. Under these conditions, there is place for a quantity rationing equilibrium since preferences are revealed when prices are already set and market-clearing can not be attained through changes in prices. " Demand heterogeneity " is introduced in the model and related to " demand uncertainty " : when firms set prices, their own market shares are not known with certainty, even if aggregate demand and the distribution of market shares are common knowledge. The main properties of the aggregate equilibrium are : (a) some markets are demand constrained while other markets are supply constrained, (b) aggregate production is smaller demand and full-employment output, (c) there is (involuntary) unemployment, and (d) effective demand is greater than a national demand, implying a positive spill-over effect.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1992004.

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Length: 21
Date of creation: 01 Jan 1992
Date of revision:
Handle: RePEc:ctl:louvir:1992004
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  1. Jean-Pascal Benassy, 1976. "The Disequilibrium Approach to Monopolistic Price Setting and General Monopolistic Equilibrium," Review of Economic Studies, Oxford University Press, vol. 43(1), pages 69-81.
  2. Sneessens, H. & Dreze, J., 1985. "A discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics," CORE Discussion Papers 1985040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Kooiman, P, 1984. "Smoothing the Aggregate Fix-Price Model and the Use of Business Survey Data," Economic Journal, Royal Economic Society, vol. 94(376), pages 899-913, December.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April.
  6. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
  7. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
  8. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  9. Dreze, Jacques & Bean, Charles R, 1990. " European Unemployment: Lessons from a Multicountry Econometric Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 135-65.
  10. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
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