Price Setting on a Network

Abstract

I study price setting within a network of interconnected monopolists. Some firms possess stronger commitment or bargaining power than others, enabling them to influence the pricing decisions of other firms. Although it is well-understood that multiple marginalization reduces both total profits and social welfare, I show that strategic interactions within the network exacerbate the marginalization problem. Individual profits are proportional to a new measure of network centrality, defined by the equilibrium characterization. The results underscore the importance of network structure in policy considerations, such as mergers or trade policies.