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Evolution of a Collusive Price in a Networked Market

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  • Yasuhiro Shirata

    (Otaru University of Commerce)

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.

Suggested Citation

  • Yasuhiro Shirata, 2020. "Evolution of a Collusive Price in a Networked Market," Dynamic Games and Applications, Springer, vol. 10(2), pages 528-554, June.
    • Handle: RePEc:spr:dyngam:v:10:y:2020:i:2:d:10.1007_s13235-019-00322-2
    DOI: 10.1007/s13235-019-00322-2
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