A Network Model of Price Dispersion
AbstractWe 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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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.28.
Date of creation: Mar 2008
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-COM-2008-09-13 (Industrial Competition)
- NEP-IND-2008-09-13 (Industrial Organization)
- NEP-MIC-2008-09-13 (Microeconomics)
- NEP-NET-2008-09-13 (Network Economics)
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