Imperfectly competitive factor markets and price normalization

A two-sector general equilibrium model with imperfectly competitive labor markets is set up. Noncooperative equilibria with wage setting at the sectoral level are shown to depend on the choice of price-normalization rule even though al agents behave fully rationally. Hence, imposing rationality is not sufficient to deprive the choice of price-normalization rule of its importance. It is argued that the importance of the choice of price-normalization rule may follow from the strategic interaction of agents and not from imperfectness of competition per se, and some examples are provided.