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On Monopolistic Competition and Involuntary Unemployment

Author

Listed:
  • Claude d'Aspremont
  • Rodolphe Dos Santos Ferreira
  • Louis-André Gérard-Varet

Abstract

In a simple temporary general equilibrium model, it is shown that, if the number of firms is small, imperfect price competition in the markets for goods may be responsible for the existence of unemployment at any given positive wage. In our examples involving two firms facing their "true" demand curves, total monopolistic labor demand remains bounded as the wage rate goes to zero, and unemployment prevails for a sufficiently large inelastic labor supply. In the competitive case total labor demand would go to infinity and intersect labor supply at a positive wage.

Suggested Citation

  • Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 1990. "On Monopolistic Competition and Involuntary Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 895-919.
    • Handle: RePEc:oup:qjecon:v:105:y:1990:i:4:p:895-919.
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