Price Setting on a Network

Toomas Hinnosaar

No 18073, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

JEL-codes: C72 D43 L14 (search for similar items in EconPapers)
Date: 2023-04
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Related works:
Working Paper: Price setting on a network (2020)
Working Paper: Price Setting on a Network (2019)
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