Price Competition on Graphs
Tinbergen Institute Discussion Paper 10-126/1
47 Pages Posted: 17 Dec 2010
Date Written: December 14, 2010
This paper extends Hotelling's model of price competition with quadratic transportation costs from a line to graphs. I propose an algorithm to calculate firm-level demand for any given graph, conditional on prices and firm locations. One feature of graph models of price competition is that spatial discontinuities in firm-level demand may occur. I show that the existence result of D'Aspremont et al. (1979) does not extend to simple star graphs. I 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.
Keywords: spatial competition, Hotelling, graphs
JEL Classification: D43, L10, R12
Suggested Citation: Suggested Citation