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Price competition in product variety networks

Philip Ushchev () and Yves Zenou ()

Games and Economic Behavior, 2018, vol. 110, issue C, 226-247

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.

Keywords: Networks; Product variety; Monopolistic competition; Spatial competition (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: Price Competition in Product Variety Networks (2016) Downloads
Working Paper: Price Competition in Product Variety Networks (2016) Downloads
Working Paper: Price Competition in Product Variety Networks (2015) Downloads
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