Modelling Market Power in Labour and Product Markets in a Dynamic Economy
In this paper a unified framework is developed for modelling imperfect competition in a monopolistic economy and in a unionised economy in a dynamic setting. Concentrating on the steady state analysis, a graphical approach is developed in consumption/leisure space. In both cases, there is a distortion towards leisure and away from consumption/work. The unionised economy is dynamically efficient, in the sense that the marginal product of labour equals discount rate. However, the monopolistic economy is not: the marginal product of capital exceeds the discount rate. This enables us to compare the outcome sin terms of productivity, utility and employment.
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