On The Existence of A Cournot Equilibrium With Endogenous Income
We consider the general equilibrium of an economy with Cournot competition in the product market. In this framework, firms endowed with market power are assumed to know the true or objective demand function. However, depending on the economy's structure, the demand function varies with the size of income feedback effects. Two cases are studied depending on whether the consumers' income is considered by firms as exogenous (no feedback effects) or indogenous (feedback effects) to their actions. We establish a relationship between both cases, that is to say an expression for the demand for goods including feedback effects in terms of the demand without feedback effects. This relationship is useful regarding the conditions ensuring the existence of a Cournot equilibrium and also the features of this equilibrium. We illustrate the latter point through macroeconomic implications such as the debate, full employment vs involuntary unemployment.
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