Price Setting on a Network
Computer Science and Game Theory
2019-04-16 v1 General Economics
Theoretical Economics
Economics
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
Cite
@article{arxiv.1904.06757,
title = {Price Setting on a Network},
author = {Toomas Hinnosaar},
journal= {arXiv preprint arXiv:1904.06757},
year = {2019}
}