Dynamics of Brand Competition: Effects of Unobserved Social Networks

Abstract

Brand competition is modelled using an agent based approach in order to examine the long run dynamics of market structure and brand characteristics. A repeated game is designed where myopic rms choose strategies based on beliefs about their rivals and consumers. Consumers are heterogeneous and can observe neighbours' behaviour through social networks. Although rms do not observe them, the social networks have a significant impact on the emerging market structure. Presence of networks tends to polarize market share and leads to higher volatility in brands. Yet convergence in brand characteristics usually happens whenever the market reaches a steady state. Scale-free networks accentuate the polarization and volatility more than small world or random networks. Unilateral innovations are less frequent under social networks.

Keywords: dynamic oligopoly, evolutionary game, random network, small world network

JEL Classification: C63, C73, D21, D43