A Network Model of Price Dispersion

Giacomo Pasini, Paolo Pin and Simon Weidenholzer

No 6230, Coalition Theory Network Working Papers from Fondazione Eni Enrico Mattei (FEEM)

Abstract: We analyze a model of price competition a la Bertrand in a network environment. Firms only have a limited information on the structure of network: they know the number of potential customers they can attract and the degree distribution of customers. This incomplete information framework stimulates the use of Bayesian-Nash equilibrium. We find that, if there are customers only linked to one firm, but not all of them are, then an equilibrium in randomized strategies fails to exist. Instead, we find a symmetric equilibrium in randomized strategies. Finally, we test our results on US gasoline data. We find empirical evidence consistent with firms playing random strategies.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Pages: 27
Date: 2008-03
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Citations: View citations in EconPapers (2)

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Working Paper: A Network Model of Price Dispersion (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemct:6230

DOI: 10.22004/ag.econ.6230

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