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A Network Model of Price Dispersion

Listed author(s):
  • Giacomo Pasini

    (Ca' Foscari University in Venice)

  • Paolo Pin

    (Abdus Salam Internazional Centre for Theoretical Physics)

  • Simon Weidenholzer

    (Institut für Volkswirtschaftslehre, Universität Wien)

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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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
Handle: RePEc:fem:femwpa:2008.28
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