رقابت ناقص، تعادل عمومی و بیکاری

We analyze whether different learning abilities of firms with respect to general equilibrium effects lead to different levels of unemployment. We consider a general equilibrium model, where firms in one sector compete à la Cournot and a real wage rigidity leads to unemployment. If firms consider only partial equilibrium effects when choosing quantities, the observation of general equilibrium feedback effects will lead to repeated quantity adjustments until a steady state is reached. When labor is mobile across industries, unemployment in the steady state is higher than when all general equilibrium effects are incorporated at once. The opposite result is true if labor is immobile.

In this paper we examine whether the inability to recognize general equilibrium effects leads to high unemployment. Our major conclusion is that this hypothesis is true if labor is mobile across industries, and wrong if labor is immobile. We consider a two sector model with imperfect competition in one sector and a real wage rigidity for low-skilled workers which creates unemployment. We compare two scenarios of Cournot competition in the imperfectly competitive sector: in the first scenario, we analyze what happens when firms incorporate all general equilibrium feedback effects at once when they choose their supply. We call this procedure general equilibrium Cournot competition, denoted by GEC, and the resulting equilibrium shall be the GEC outcome. In the second scenario, we assume that firms do not take into account general equilibrium feedbacks of their quantity choice. Firms select best responses against their competitors’ best responses under the assumption that the rest of the economy remains unchanged. They then encounter general equilibrium feedbacks and revise their production plans. As we will show, this procedure will converge to a state, where no further unexpected general equilibrium feedbacks will occur anymore. We call this process partial equilibrium Cournot competition, denoted by PEC and the state of convergence we call PEC steady state. We obtain the following results: first, the resulting equilibria under PEC and GEC generally differ. Second, unemployment in the PEC steady state is not always higher than in the GEC outcome. In particular, we show that the degree of labor mobility across sectors determines the relative unemployment of GEC and PEC. When labor is mobile, unemployment is lower under GEC than under PEC. The opposite result is true when labor is immobile. To understand these twin results, we will identify four effects that account for the difference between PEC and GEC. The major effect leading to low output and low employment under PEC relative to GEC is the overestimation of the price reaction when the quantity is lowered by an individual firm. The counteracting effect in our model is the underestimation of the change of high-skilled workers’ wages that are assumed by firms to remain constant. Since firms underestimate their wage costs when they increase their supply, quantity choices and employment tend to be higher for PEC than for GEC. The latter effect is large if labor is immobile and dominates all other effects. But when labor is mobile, the effect is rather small, and the results are reversed. In the paper we will proceed as follows: in Section 2, we relate our paper to the literature on imperfect competition in a general equilibrium context. Section 3 develops the model. The simulation results are presented in Section 4. Section 5 deals with the implications of an immobile labor force and Section 6 concludes.

We have developed a general equilibrium model with Cournot competition in one sector and perfect competition in the other sector in order to study how different levels of sophistication of the functioning of the economy affect unemployment. We have shown that a partial equilibrium view of the economy by competing firms leads to high unemployment, compared with a general equilibrium view when the production factors are mobile. In contrast, if the production factors are immobile, the opposite result holds. Our model can also be interpreted in a somewhat different way. The economy we are considering can be viewed as a region inside a large economy where some firms have market power. Such an interpretation requires that a large part of the income generated within the region is spent within the region, or that exports and imports between the region and the rest of the economy are balanced.7 We hope that our analysis offers some avenues for further research. One of the most important features of this research agenda is to examine other types of product market competition. For instance, we conjecture that differences in the recognition of general equilibrium effects might be irrelevant with Bertrand competition and constant marginal costs, since prices equalize marginal costs with PEC, GEC and perfect competition. In which way other types of product market competition affect the relative comparison of PEC and GEC is left for future research.