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Price Competition on Graphs

Author

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  • Pim Heijnen

    (University of Groningen)

  • Adriaan Soetevent

    (University of Groningen)

Abstract

This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. We derive an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. These graph models of price competition may lead to spatial discontinuities in firm-level demand. We show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs and conjecture that this non-existence result holds more generally for all graph models with two or more firms that cannot be reduced to a line or circle.

Suggested Citation

  • Pim Heijnen & Adriaan Soetevent, 2014. "Price Competition on Graphs," Tinbergen Institute Discussion Papers 14-131/VII, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20140131
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    Cited by:

    1. Hinloopen, Jeroen & Müller, Wieland & Normann, Hans-Theo, 2014. "Output commitment through product bundling: Experimental evidence," European Economic Review, Elsevier, vol. 65(C), pages 164-180.
    2. Hinloopen, Jeroen & Martin, Stephen, 2017. "Costly location in Hotelling duopoly," Research in Economics, Elsevier, vol. 71(1), pages 118-128.
    3. Fernando Vega-Redondo & Paolo Pin & Diego Ubfal & Cristiana Benedetti-Fasil & Charles Brummitt & Gaia Rubera & Dirk Hovy & Tommaso Fornaciari, 2019. "Peer Networks and Entrepreneurship: a Pan-African RCT," Working Papers 648, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Gaëtan Fournier & Marco Scarsini, 2019. "Location Games on Networks: Existence and Efficiency of Equilibria," Mathematics of Operations Research, INFORMS, vol. 44(1), pages 212-235, February.
    5. de Roos, Nicolas, 2012. "Static models of the Edgeworth cycle," Economics Letters, Elsevier, vol. 117(3), pages 881-882.
    6. Gaëtan Fournier & Marco Scarsini, 2014. "Hotelling Games on Networks: Efficiency of Equilibria," Post-Print halshs-00983085, HAL.
    7. Arthur Charpentier & Alfred Galichon & Lucas Vernet, 2019. "Optimal transport on large networks a practitioner guide," Working Papers hal-02173210, HAL.
    8. Arthur Charpentier & Alfred Galichon & Lucas Vernet, 2019. "Optimal transport on large networks, a practitioner's guide," Papers 1907.02320, arXiv.org, revised Aug 2019.
    9. Matías Núñez & Marco Scarsini, 2016. "Competing over a finite number of locations," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 125-136, October.
    10. Dubovik, Andrei, 2018. "Mergers on Networks," MPRA Paper 95458, University Library of Munich, Germany.

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    More about this item

    Keywords

    spatial competition; Hotelling; graphs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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