Price Setting on a Network

38 Pages Posted: 16 May 2018 Last revised: 12 Apr 2023

See all articles by Toomas Hinnosaar

Toomas Hinnosaar

University of Nottingham - School of Economics

Date Written: April 11, 2023

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.

Keywords: price setting, networks, sequential games, multiple-marginalization, supply chains, mergers, tariffs, trade, centrality

JEL Classification: C72, L14, D43

Suggested Citation

Hinnosaar, Toomas, Price Setting on a Network (April 11, 2023). Available at SSRN: https://ssrn.com/abstract=3172236 or http://dx.doi.org/10.2139/ssrn.3172236

Toomas Hinnosaar (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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