224 / 2024-04-23 15:20:29

Price Competition in Social Networks with Price Constraints

Price competition,Network externalities,Price constraints

We study price competition between firms selling interdependent products to consumers connected in a network. The firms face constraints on their price-setting that reflect various market realities and policy regulations. Through theoretical and simulation analysis, we make several contributions. First, we prove existence and uniqueness of pricing equilibrium under general network structures, spillover effects between products, and price constraints. Second, we characterize equilibrium prices using variational inequality techniques. Third, we analyze how different price constraints impact firm profits, consumer welfare, consumption levels, and total welfare. Simulation results using classical Erdos-Renyi random networks, stochastic block models, and real networks provide additional economic insights. Our work advances understanding of pricing strategies between competing  networks facing realistic pricing frictions.