Price competition in product variety networks
Price competition in product variety networks
We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that there exists a unique Bertrand–Nash equilibrium where prices are determined by both the firms' sign-alternating Bonacich centralities and the average willingness to pay across consumers. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the central firm does not always enjoy higher monopoly power than the peripheral firms.
226-247
Ushchev, Philip
cafe9ac7-4626-4a0a-9062-5355cca0f587
Zenou, Yves
38bf0c72-462b-4c08-8fd1-ce365b0296dc
July 2018
Ushchev, Philip
cafe9ac7-4626-4a0a-9062-5355cca0f587
Zenou, Yves
38bf0c72-462b-4c08-8fd1-ce365b0296dc
Ushchev, Philip and Zenou, Yves
(2018)
Price competition in product variety networks.
Games and Economic Behavior, 110, .
(doi:10.1016/j.geb.2018.04.002).
Abstract
We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that there exists a unique Bertrand–Nash equilibrium where prices are determined by both the firms' sign-alternating Bonacich centralities and the average willingness to pay across consumers. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the central firm does not always enjoy higher monopoly power than the peripheral firms.
Text
Price Competition-56 (002)
- Accepted Manuscript
More information
Accepted/In Press date: 17 April 2018
e-pub ahead of print date: 24 April 2018
Published date: July 2018
Identifiers
Local EPrints ID: 422066
URI: http://eprints.soton.ac.uk/id/eprint/422066
ISSN: 0899-8256
PURE UUID: c2cfec47-eb8d-49a9-abfb-71e73ae8a62b
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Date deposited: 13 Jul 2018 16:31
Last modified: 16 Mar 2024 06:32
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Author:
Philip Ushchev
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