Price Regulation with Spillovers

2025-08-24

AI Summary

This paper studies price regulation of a monopolist under demand spillovers to correct resulting Pareto inefficiencies. Methodologically, it constructs a “price family” grounded in network centrality, characterizes the profit–consumer-surplus Pareto frontier, and systematically analyzes how spillover intensity affects regulatory efficacy: under fixed spillovers, standard regulation typically yields Pareto-inefficient outcomes, yet efficacy improves asymptotically toward neutrality as spillovers strengthen; under strong spillovers, the welfare impact of banning price discrimination hinges solely on the correlation between intrinsic valuations and network statistics (e.g., centrality). The approach integrates network centrality analysis, Pareto boundary characterization, demand spillover modeling, and aggregation of dual-node types (core–periphery). A key contribution is proving that within-type means of intrinsic valuations suffice for cross-network welfare comparisons—substantially simplifying regulatory policy evaluation in complex networks.

Technology Category

• Game Theory and Economic Paradigms: Auctions and Market-Based Systems
• Multiagent Systems: Mechanism Design
• Planning, Routing, and Scheduling: Optimization of Spatio-temporal Systems

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Social Networks and Social Media: Media and governance, opinion dynamics, filter bubbles, polarization
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

We examine price regulation for monopolists in networks with demand spillovers. The Pareto frontier of the profit-surplus set is characterized using a centrality-based price family. Under typical price regulation policies, regulated outcomes are generically Pareto inefficient at fixed spillover levels but become neutral as spillovers grow, with relative profit loss and surplus changes vanishing. Welfare impacts of banning price discrimination under strong spillovers depend solely on the correlation between intrinsic values and network summary statistics. In networks with two node types (e.g., coreperiphery or complete bipartite), intrinsic value averages across node types suffice for welfare comparisons.

Problem

• Examining price regulation for monopolists with demand spillovers
• Characterizing Pareto efficiency using centrality-based pricing
• Analyzing welfare impacts of banning price discrimination

Innovation

• Centrality-based price family regulation
• Pareto efficiency analysis under spillovers
• Welfare impact via value-network correlation