Imperfectly Competitive Factor Markets and Price Normalization
University of Aarhus, Dept. of Economics Working Paper 1996-5
Posted: 25 Apr 1998
Date Written: Undated
Abstract
A two-sector general equilibrium model with imperfectly competitive labour markets is set up. Non-cooperative equilibria with wage setting at the sectoral level are shown to depend on the choice of price normalization rule even though all agents behave fully rationally. Hence, imposing rationality is not sufficient to deprive the choice of price normalization rule of its importance. It is argued that the importance of the choice of price normalization rule may follow from the strategic interaction of agents and not from imperfectness of competition per se, and some examples are provided.
JEL Classification: D50, J51
Suggested Citation: Suggested Citation