A Network Model of Price Dispersion

27 Pages Posted: 23 Apr 2008

See all articles by Giacomo Pasini

Giacomo Pasini

Ca' Foscari University of Venice; Netspar

Paolo Pin

Dipartimento di Economia Politica

Simon Weidenholzer

University of Vienna - Department of Economics

Date Written: March 1, 2008

Abstract

We analyze a model of price competition ά 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.

Keywords: Bertrand Competition, Bayesian- Nash Equilibrium, Mobility Index

JEL Classification: D43, D85, L11

Suggested Citation

Pasini, Giacomo and Pin, Paolo and Weidenholzer, Simon, A Network Model of Price Dispersion (March 1, 2008). FEEM Working Paper No. 28.2008, Available at SSRN: https://ssrn.com/abstract=1115754 or http://dx.doi.org/10.2139/ssrn.1115754

Giacomo Pasini (Contact Author)

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy
+39 041 234 9171 (Phone)
+39 041 2349176 (Fax)

HOME PAGE: http://https://sites.google.com/unive.it/pasini

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl/people/researchfellows/pasini/

Paolo Pin

Dipartimento di Economia Politica ( email )

Piazza San Francesco 8
Siena, I53100
Italy

Simon Weidenholzer

University of Vienna - Department of Economics ( email )

Bruennerstrasse 72
Vienna, A-1210
Austria

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