A Network Model of Price Dispersion
Date
01.01.2008
01.01.2008
Authors
Giacomo Pasini, Paolo Pin, Simon Weidenholzer
JEL Code
D43,D85,L11
D43,D85,L11
Keywords:
Bertrand Competition,Bayesian- Nash Equilibrium,Mobility Index
Bertrand Competition,Bayesian- Nash Equilibrium,Mobility Index
Publisher
Climate Change and Sustainable Development
Climate Change and Sustainable Development
Editor
Carlo Carraro
Carlo Carraro
We analyze a model of price competition Ü 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.