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Regular version of the site

Article

Price Competition in Product Variety Networks

Games and Economic Behavior. 2018. Vol. 110. P. 226-247.
Ushchev P., Zenou Y.

We develop a product-differentiated model where the product space is a network defi ned
as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate
consumers into this network, so that the location of each consumer (node) corresponds to her
"ideal" variety. We show that there exists a unique Bertrand-Nash equilibrium where prices are
determined by both the fi rms' sign-alternating Bonacich centralities and the average willingness
to pay across consumers. We also investigate how local product differentiation and the spatial
discount factor affect the equilibrium prices. We show that these effects non-trivially depend
on the network structure. In particular, we find that, in a star-shaped network, the central fi rm
does not always enjoy higher monopoly power than the peripheral firms.