Nicolas Schutz

Abstract:

We develop a potential games approach to multiproduct-firm pricing games. We introduce the concept of transformed potential and characterize classes of demand systems that give rise to pricing games admitting such a potential. The resulting demand systems may contain nests (of closer substitutes) or baskets (of products that are purchased jointly), or combinations thereof. These demand systems allow for flexible substitution patterns, and can feature product complementarities arising from joint purchases and substitution away from the outside option. Combining the potential games approach with a competition-in-utility approach, we derive powerful results on existence and uniqueness of a pure-strategy Nash equilibrium.