Governance of Social Welfare in Networked Markets

Abstract

This article aims to investigate how a central authority (e.g., a government) can increase social welfare (SW) in a network of markets and firms. In these networks, modeled using a bipartite graph, firms compete with each other <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">à la</i> Cournot. Each firm can supply homogeneous goods in markets which it has access to. The central authority may take different policies for its aim. In this article, we assume that the government has a budget by which it can supply some goods and inject them into various markets. We discuss how the central authority can best allocate its budget for the distribution of goods to maximize SW. We show that the solution is highly dependent on the structure of the network. Then, using the network’s structural features, we present a heuristic algorithm for our target problem. Finally, we compare the performance of our algorithm with other heuristics with experimentation on real datasets.