The role of consumer networks in firms' multi-characteristics competition and market-share inequality

TL;DR

This paper models how consumer opinions on multilayered networks influence firms' multi-characteristics competition and market-share inequality, using a dynamic agent-based approach that captures complex adaptive behaviors beyond traditional game theory.

Contribution

It introduces a multi-layered network model of consumer opinions affecting firms' location choices in multi-characteristics space, advancing analysis beyond classical game-theoretic methods.

Findings

Consumer opinions on multilayered networks influence firm location choices.

Firms adaptively learn and compete in multi-characteristics space.

The model explains market-share inequality through network effects.

Abstract

We develop a location analysis spatial model of firms' competition in multi-characteristics space, where consumers' opinions about the firms' products are distributed on multilayered networks. Firms do not compete on price but only on location upon the products' multi-characteristics space, and they aim to attract the maximum number of consumers. Boundedly rational consumers have distinct ideal points/tastes over the possible available firm locations but, crucially, they are affected by the opinions of their neighbors. Proposing a dynamic agent-based analysis on firms' location choice we characterize multi-dimensional product differentiation competition as adaptive learning by firms' managers and we argue that such a complex systems approach advances the analysis in alternative ways, beyond game-theoretic calculations.