Evolution of a Collusive Price in a Networked Market

Yasuhiro Shirata

Dynamic Games and Applications, 2020, vol. 10, issue 2, No 10, 528-554

Abstract: Abstract This paper studies evolution of firms’ behavior in a networked Bertrand oligopoly market, in which firms who are located on vertices of a network compete in price with their neighbors. This network model is also applied to a market with multi-dimensionally differentiated products. In a non-networked market, it is known that the Bertrand–Nash equilibrium pricing is evolutionarily stable. We show, however, that in our large networked market, the Bertrand–Nash equilibrium price is not stable but a collusive price is evolutionarily stable under weak selection. As the magnitude of transportation cost increases, firms charge a more collusive price in the long run. The results suggest that collusive pricing prevails in a large market if and only if it is networked.

Keywords: Bertrand competition; Product differentiation; Evolutionary dynamics on networks; Networked market (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s13235-019-00322-2

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