The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network

Jolian McHardy, Michael Reynolds and Stephen Trotter
Additional contact information
Michael Reynolds: School of International Studies, University of Bradford
Stephen Trotter: Centre for Economic Policy, University of Hull

No 2012008, Working Papers from The University of Sheffield, Department of Economics

Abstract: We consider an application of the Stackelberg leader-follower model in prices in a simple two-firm network as a possible way to help resolve externalities that can be harmful to firm profit and welfare. Whilst independent pricing on the network yields lower profit and sometimes even lower welfare than monopoly pricing, we show that by allowing the firms to collude on some prices in a first-stage and set remaining prices independently (competitively) in a second stage, both profit and welfare gains can be made.

Keywords: Stackelberg; pricing; network (search for similar items in EconPapers)
JEL-codes: L11 L14 L51 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2012
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http://www.shef.ac.uk/economics/research/serps/articles/2012_008.html First version, 2012 (application/pdf)

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Working Paper: The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network (2012)
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