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Price Competition in Product Variety Networks

Author

Listed:
  • Ushchev, Philip
  • Zenou, Yves

Abstract

We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that, even though prices need not to be strategic complements, there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by both firms’ sign-alternating Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.

Suggested Citation

  • Ushchev, Philip & Zenou, Yves, "undated". "Price Competition in Product Variety Networks," ETA: Economic Theory and Applications 244535, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemth:244535
    DOI: 10.22004/ag.econ.244535
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    File URL: https://ageconsearch.umn.edu/record/244535/files/NDL2016-059.pdf
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    Cited by:

    1. Ying‐Ju Chen & Yves Zenou & Junjie Zhou, 2018. "Competitive pricing strategies in social networks," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 672-705, September.
    2. Chen, Ying-Ju & Zenou, Yves & Zhou, Junjie, 2022. "The impact of network topology and market structure on pricing," Journal of Economic Theory, Elsevier, vol. 204(C).
    3. Maxim Goryunov & Sergey Kokovin & Takatoshi Tabuchi, 2022. "Continuous spatial monopolistic competition: matching goods with consumers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(3), pages 793-832, October.
    4. Sergey Kokovin & Alina Ozhegova & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2024. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 354-384, May.
    5. Zenou, Yves & Chen, Ying-Ju & Zhou, Junjie, 2020. "Network Topology and Market Structure," CEPR Discussion Papers 14495, C.E.P.R. Discussion Papers.
    6. Jacques-François Thisse & Philip Ushchev, 2018. "Monopolistic competition without apology," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 5, pages 93-136, Edward Elgar Publishing.
    7. Plan, Asaf, 2023. "Symmetry in n-player games," Journal of Economic Theory, Elsevier, vol. 207(C).
    8. Jacques-François Thisse & Filipp Ushchev, 2018. "Monopolistic competition without apology," ULB Institutional Repository 2013/387748, ULB -- Universite Libre de Bruxelles.
    9. Panebianco, Fabrizio & Verdier, Thierry & Zenou, Yves, 2016. "Innovation, Pricing and Targeting in Networks," CEPR Discussion Papers 11398, C.E.P.R. Discussion Papers.
    10. Ushchev, Philip & Zenou, Yves, 2020. "Social norms in networks," Journal of Economic Theory, Elsevier, vol. 185(C).
    11. Takeda, Kohei & Hosoe, Toyoki & Watanabe, Takayuki & Matsubayashi, Nobuo, 2018. "Stability analysis of horizontal mergers in a market with asymmetric substitutability," Mathematical Social Sciences, Elsevier, vol. 96(C), pages 73-84.
    12. Boitier, Vincent, 2024. "Private ownership in monopolistic competition models," Research in Economics, Elsevier, vol. 78(4).
    13. Chengqing Li & Junjie Zhou, 2025. "Price Regulation and Network Spillovers," Papers 2508.17301, arXiv.org, revised Mar 2026.
    14. Toomas Hinnosaar, 2019. "Price Setting on a Network," Papers 1904.06757, arXiv.org.
    15. Agrawal, David R. & Bagh, Adib & Mardan, Mohammed, 2025. "Sensitivity versus size: implications for tax competition," Theoretical Economics, Econometric Society, vol. 20(3), July.
    16. Bruno Pellegrino, 2025. "Product Differentiation and Oligopoly: A Network Approach," American Economic Review, American Economic Association, vol. 115(4), pages 1170-1225, April.
    17. Ryo Itoh & Zonghui Li, 2021. "Effects of dual networks on tax strategies: geography and transaction," The Japanese Economic Review, Springer, vol. 72(1), pages 97-128, January.
    18. Lu, Lijue & Menezes, Mozart B.C., 2024. "Supply chain vertical competition and product proliferation under different power structures," International Journal of Production Economics, Elsevier, vol. 267(C).
    19. Kor, Ryan & Zhou, Junjie, 2023. "Multi-activity influence and intervention," Games and Economic Behavior, Elsevier, vol. 137(C), pages 91-115.
    20. Wang, Yuanhua & Wang, Ying & Li, Haitao & Zang, Wenke, 2025. "Matrix expressions of symmetric n-player games," Applied Mathematics and Computation, Elsevier, vol. 488(C).

    More about this item

    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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