Imperfect Competition and Firm Efficiency: a General Equilibrium Approach

This paper presenta a general equilibrium model of imperfect competition in which firm efficiency depends on the level of product market competition. X-efficiency is shown to arise to the extent unions directly affect the level of employment. A positive relationship is established between total employment and firm efficiency. Employment and output are shown to be not necessarily increasing in the degree of competition and lower total employment may lead to higher output and welfare.