Bertrand-Edgeworth equilibrium in a cash-in-advance economy

Abstract

This paper is about price and wage competition in a dynamic general equilibrium model. We consider an equity financed economy where firms need money to finance their input costs. Part of the output is sold for money to be used in the next period as working capital and the remaining part is distributed to owners as real dividends. We first characterize the steady state competitive equilibrium path. Second, we study whether this competitive equilibrium can be supported as a pure strategy Nash equilibrium in price and wage setting games. We prove a positive result for price competition and a negative one for wage competition.