Price setting on a network

Toomas Hinnosaar

No 618, Carlo Alberto Notebooks from Collegio Carlo Alberto

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.

Keywords: price setting; networks; sequential games; multiple-marginalization; supply chains; mergers; tariffs; trade; centrality. (search for similar items in EconPapers)
JEL-codes: C72 D43 L14 (search for similar items in EconPapers)
Pages: pages 37
Date: 2020
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-net
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https://www.carloalberto.org/wp-content/uploads/2020/12/no.618.pdf (application/pdf)

Related works:
Working Paper: Price Setting on a Network (2023)
Working Paper: Price Setting on a Network (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:618

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