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Equilibrium Involuntary Unemployment Under Oligempory

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  • L Kaas
  • P Madden

Abstract

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 Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.

Suggested Citation

  • L Kaas & P Madden, 2002. "Equilibrium Involuntary Unemployment Under Oligempory," Centre for Growth and Business Cycle Research Discussion Paper Series 21, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:21
    as

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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr21.pdf
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    References listed on IDEAS

    as
    1. Jones, Larry E & Manuelli, Rodolfo E, 1992. "The Coordination Problem and Equilibrium Theories of Recessions," American Economic Review, American Economic Association, vol. 82(3), pages 451-471, June.
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    3. Jean-Pascal Benassy, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 217-234.
    4. repec:bla:scandj:v:93:y:1991:i:4:p:479-94 is not listed on IDEAS
    5. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 1-26.
    6. 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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    More about this item

    Keywords

    involuntary unemployment; multi-stage game; imperfect competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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