Thursday, July 23, 2015

Price Competition on Graphs

Pim Heijnen (University of Groningen) and Adriaan Soetevent (University of Groningen) explore Price Competition on Graphs.

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.

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