We construct a model of a firm competing for market share in a customer market and making investments in physical capital. The firm is financially constrained and there are implementation lags in investment. Our model predicts that product prices should depend on costs and competitors' prices,...

According to the standard union bargaining model, unemployment benefits should have big effects on wages, but product market prices and productivity should play no role in the wage bargain. We formulate an alternative strategic bargaining model, where labour and product market conditions...

How do firms adjust their output, inventories, employment and capital in response to demandsideshocks? To understand this, we estimate a reduced-form model using firm-level panel dataand we construct a theoretical model that can match the estimated impulse-response functions.A combination of...

Price and investment equations are estimated using a unique data set for Swedish manufacturing plants. The empirical specification is based on a theoretical model of a financially constrained firm selling its output in a customer market. We find that, as predicted by our theoretical model,...

The basic idea is that employed and unemployed workers have diverging interest s and that wage decisions tend to favor the interest of those employe d. This is shown to imply that unemployment, once created, tends to p ersist after wage contracts have been negotiated anew. The reason is that the...

The authors formulate a stochastic infinite-horizon insider-outsider model that is solved explicitly and used to investigate the consequences of alternative 'seniority' rules for wage and employment determination. The model is simple enough to allow analysis of several different institutional...

According to standard theory, an increase in demand should raise prices of goods, given factor prices. Empirically, however, prices appear to be unaffected by short-run variations in demand. This paper suggests an explanation of this observation. If customers react slowly to price changes and...

Recent studies of wage bargaining and unemployment have emphasized the distinction between insiders and outsiders, and that unions act in the interest of insiders. Yet it is typically assumed that insiders and recently hired outsiders are paid the same wage. We consider a model where the...