Equilibrium Involuntary Unemployment under Oligempory
We show that equilibrium involuntary unemployment emerges in a multi-stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect equilibria involving unemployment. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the low wage firm out of both markets. Full employment equilibria may also exist, but only the involuntary unemployment equilibria are robust to decreasing returns.
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- Jones, Larry E & Manuelli, Rodolfo E, 1992.
"The Coordination Problem and Equilibrium Theories of Recessions,"
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- repec:cor:louvrp:-536 is not listed on IDEAS
- Jean-Pascal Benassy, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 217-234.
- Heal, Geoffrey, 1981. "Rational rationing and increasing returns an example," Economics Letters, Elsevier, vol. 8(1), pages 19-27. Full references (including those not matched with items on IDEAS)
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