Macroeconomic coordination failure under oligempory

Gaygısız E., Madden P.

Economic Theory, vol.20, no.1, pp.93-112, 2002 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 20 Issue: 1
  • Publication Date: 2002
  • Doi Number: 10.1007/s001990100193
  • Journal Name: Economic Theory
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.93-112
  • Middle East Technical University Affiliated: Yes


Each sector of a multi-sector overlapping generations model is an oligempory with a given number of firms, oligopsonists in the sectoral (spatially differentiated) labour market and oligopolists in the sectoral (homogeneous) output market. When there is aggregate unemployment, and a firm raises wages beyond the local full employment level acquiring labour from neighbours, sectoral output supply becomes constant and the firm faces a flat output demand curve under constant returns to labour (upward sloping under decreasing returns). Multiple temporary equilibria and Pareto-ranked steady-state equilibria emerge; the associated sunspot equilibria exhibit counter-cyclical markups, inter alia.