A Network Model of Price Dispersion

Giacomo Pasini, Paolo Pin and Simon Weidenholzer

No 2008.28, Working Papers from Fondazione Eni Enrico Mattei

Abstract: We analyze a model of price competition ? 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: Bertrand Competition; Bayesian- Nash Equilibrium; Mobility Index (search for similar items in EconPapers)
JEL-codes: D43 D85 L11 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The informational divide (2013)
Working Paper: A Network Model of Price Dispersion (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2008.28

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