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Price Setting on a Network

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  • Hinnosaar, Toomas

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, 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 policies.

Suggested Citation

  • Hinnosaar, Toomas, 2023. "Price Setting on a Network," CEPR Discussion Papers 18073, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18073
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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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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