A Model of Bertrand-Edgeworth Competition in the Labor Market

This paper formalizes, for the labor market, the traditional view that competition among the sellers leads to a fall in prices so long as there is excess supply. First we show that, at a Nash equilibrium of the one-period game, wages are set equal to the Walrasian wage. Then, similarly as in Edgeworth's analysis of duopoly, we take workers as engaging repeatedly in Bertrand competition, each one seeking at every date to make a best reply to the wages that all other workers are expected to quote. A quite reasonable condition on expectations is shown to be sufficient in order for the sequence of disequilibria to converge to Walrasian equilibrium.