A hotelling-type network

Abstract

This paper develops a theoretical framework to study spatial price competition in a Hotelling-type network game. Each firm i is represented by a node of degree k i, where k i is the number of firm i’s direct competitors (neighbors). We investigate price competition à la Hotelling with complete and incomplete information about the network structure. The goal is to investigate the effects of the network structure and of the uncertainty on firms’ prices and profits. We first analyze the benchmark case where each firm knows its own degree as well as the rivals’ degree. Then, in order to understand the role of information in the price competition network, we also analyze the incomplete information case where each firm knows its type (i.e. number of connections) but not the competitors’ type.