Price Setting, Free Riding, and Equilibrium

Woongki Lee
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Woongki Lee: Yonsei University

No 64nxu_v1, SocArXiv from Center for Open Science

Abstract: We analyze strategic interaction among investors by distinguishing between price taking and price setting. The analysis shows that as price setting becomes more prevalent, equilibrium prices fall. Because this lower price benefits price takers as well as price setters, price taking can be understood as free riding on price setting. The gains from the lower price are distributed more heavily toward price takers. This asymmetry creates relative-comparison concerns, which can distort incentives and discourage price setting even when it would increase aggregate utility. We examine this problem through a pricing game and derive implications for strategic behavior and equilibrium outcomes.

Date: 2026-08-07
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:64nxu_v1

DOI: 10.31219/osf.io/64nxu_v1

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