Price Competition on Graphs

Tinbergen Institute Discussion Paper 14-131/VII

36 Pages Posted: 3 Oct 2014 Last revised: 7 Oct 2014

See all articles by Pim Heijnen

Pim Heijnen

University of Groningen

Adriaan R. Soetevent

University of Groningen

Multiple version iconThere are 2 versions of this paper

Date Written: September 26, 2014

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.

Keywords: spatial competition, Hotelling, graphs

JEL Classification: D43, L10, R12

Suggested Citation

Heijnen, Pim and Soetevent, Adriaan R., Price Competition on Graphs (September 26, 2014). Tinbergen Institute Discussion Paper 14-131/VII, Available at SSRN: https://ssrn.com/abstract=2504454 or http://dx.doi.org/10.2139/ssrn.2504454

Pim Heijnen (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Adriaan R. Soetevent

University of Groningen ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
++ 31 50 363 7018 (Phone)

HOME PAGE: http://www.soetevent.com

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