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Price Setting on a Network

Toomas Hinnosaar

Papers from arXiv.org

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.

Date: 2019-04
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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