Unemployment and Product Market Competition in a Cournot Model with Efficiency Wage

This paper analyzes the impact of product market competition on unemployment, wage and welfare in a model where unemployment is caused by efficiency wage considerations and oligopolistic firms compete in quantity. It is shown that while more intensive competition in product market increases output and reduces price, it does not necessarily lead to a lower unemployment rate or a higher wage for workers. Consequently, the relationship between the intensity of competition and the level of employment (respectively, wage, welfare) is not monotonic, and, in some instances, has an inverted-U shape.