Price Competition on Graphs
Tinbergen Institute Discussion Paper 14-131/VII
36 Pages Posted: 3 Oct 2014 Last revised: 7 Oct 2014
Date Written: September 26, 2014
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.
Keywords: spatial competition, Hotelling, graphs
JEL Classification: D43, L10, R12
Suggested Citation: Suggested Citation