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Price Setting on a Network

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  • Toomas Hinnosaar

Abstract

Most products are produced and sold by supply chain networks, where an interconnected network of producers and intermediaries set prices to maximize their profits. I show that there exists a unique equilibrium in a price-setting game on a network. The key distortion reducing both total profits and social welfare is multiple-marginalization, which is magnified by strategic interactions. Individual profits are proportional to influentiality, which is a new measure of network centrality defined by the equilibrium characterization. The results emphasize the importance of the network structure when considering policy questions such as mergers or trade tariffs.

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  • Toomas Hinnosaar, 2019. "Price Setting on a Network," Papers 1904.06757, arXiv.org.
    • Handle: RePEc:arx:papers:1904.06757
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    1. Hinnosaar, Toomas, 2024. "Optimal sequential contests," Theoretical Economics, Econometric Society, vol. 19(1), January.
    2. Gabriel P. Andrade & Rafael Frongillo & Elliot Gorokhovsky & Sharadha Srinivasan, 2021. "Graphical Economies with Resale," Papers 2106.14397, arXiv.org.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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