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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, The 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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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2012_008.html
File Function: First version, 2012
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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2012008.

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Length: 16 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:shf:wpaper:2012008

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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, October.
  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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