UNEMPLOYMENT IN AN EXTENDED COURNOT OLIGOPOLY MODEL

Abstract

ATrEMP1rS to explain unemployment' begin with the labour market. Yet, by attributing it to deficient demand for goods, Keynes questioned the use of partial analysis, and stressed the need to consider interactions between the labour and product markets. Imperfect competition in the labour market, reflecting union power, has been a favoured explanation; but imperfect competition may also affect employment through producers' oligopolistic behaviour. This again points to a general equilibrium approach such as that by Negishi (1961, 1979). Here we propose an extension of the Cournot oligopoly model (unlike that of Gabszewicz and Vial (1972), where labour does not appear), which takes full account of the interdependence between the labour market and any product market. Our extension shares some features with both Negishi's conjectural approach to demand curves, and macroeconomic non-Walrasian equilibrium theories, usually associated with the fix-price approach.2 For Negishi, economic agents base decisions on perceived demand (or supply) curves which are purely subjective except at equilibrium; in contrast our conjectured demand curves are, in Nikaido's (1975) terminology, objective'. We start by defining a Cournot-Nash equilibrium for a single sector (viewed as a representative industry) and at a money wage taken as given by all agents. If one follows temporary general equilibrium theory (see Grandmont (1977)) with its particular view of money, and admits the possibility of quantity rationing in the labour market, one can view this as a short-run equilibrium and suppose that the wage is chosen at some preliminary stage. The model also has a static interpretation, where money is a nonproduced good and the nominal wage is a parameter which is competitively adjusted. In the following we shall always maintain the two interpretations.