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Stephan SEILER (Imperial College London) – "Optimal Price Targeting "
Microeconomics Seminar :
Time: 12:15 pm – 1:30pm
Date: 14th April 2021
This paper studies how input-output connections among rms determine the distribution and the welfare impact of market power in a production network. Firms compete by choosing supply and demand functions relating quantities to prices. In this way, firms’ ability to affect prices, total surplus, and its distribution are endogenous objects and are determined in equilibrium by technology, the number of competitors, and the network structure. In particular, firms take strategically into account their position in the network, and have market power on both input and output markets, in an endogenously determined way. If firms do not take into account their position in the network, I show that prices are lower. Assuming one-sided market power in either output or input markets can reverse the ranking of market power among firms. An equilibrium always exists for any network under a technology that yields quadratic profit functions, and I provide an algorithm to compute it. Finally, horizontal mergers (in absence of synergies) always increase market power.
Roxana Fernandez Machado (CREST), Julien Combe (CREST), and Matias Nunez (CREST)