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A Network Model of Price Dispersion

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Author Info
Giacomo Pasini (Ca' Foscari University in Venice)
Paolo Pin (Abdus Salam Internazional Centre for Theoretical Physics)
Simon Weidenholzer (Institut für Volkswirtschaftslehre, Universität Wien)

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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.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.28.

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Date of creation: Mar 2008
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Handle: RePEc:fem:femwpa:2008.28

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Related research
Keywords: Bertrand Competition; Bayesian- Nash Equilibrium; Mobility Index;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Matthew O. Jackson & Leeat Yariv, 2007. "Diffusion of Behavior and Equilibrium Properties in Network Games," American Economic Review, American Economic Association, vol. 97(2), pages 92-98, May. [Downloadable!]
    Other versions:
  2. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Blackwell Publishing, vol. 52(4), pages 463-496, December. [Downloadable!] (restricted)
    Other versions:
  3. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  4. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  5. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268. [Downloadable!] (restricted)
  6. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June. [Downloadable!] (restricted)
  7. Kuksov, Dmitri, 2006. "Search, common knowledge, and competition," Journal of Economic Theory, Elsevier, vol. 130(1), pages 95-108, September. [Downloadable!] (restricted)
  8. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  9. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September. [Downloadable!] (restricted)
  10. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May. [Downloadable!] (restricted)
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