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The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network

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  • Jolian McHardy

    ()
    (Department of Economics, University of Sheffield)

  • Michael Reynolds

    (School of International Studies, University of Bradford)

  • Stephen Trotter

    (Centre for Economic Policy, University of Hull)

Abstract

We consider an application of the Stackelberg leader-follower model in prices in a simple two-firm network as a possible way to help resolve externalities that can be harmful to firm profit and welfare. Whilst independent pricing on the network yields lower profit and sometimes even lower welfare than monopoly pricing, we show that by allowing the firms to collude on some prices in a first-stage and set remaining prices independently (competitively) in a second stage, both profit and welfare gains can be made.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 19_12.

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Date of creation: Jun 2012
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Handle: RePEc:rim:rimwps:19_12

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Keywords: Stackelberg; pricing; network;

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  1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  2. Jolian Mchardy, 2006. "Complementary Monopoly And Welfare: Is Splitting Up So Bad?," Manchester School, University of Manchester, vol. 74(3), pages 334-349, 06.
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