Competition and Efficiency in Congested Markets
51 Pages Posted: 2 Mar 2005
There are 2 versions of this paper
Competition and Efficiency in Congested Markets
Competition and Efficiency in Congested Markets
Date Written: February 17, 2005
Abstract
We study the efficiency of oligopoly equilibria in congested markets. The motivating examples are the allocation of network flows in a communication network or of traffic in a transportation network. We show that increasing competition among oligopolists can reduce efficiency, measured as the difference between users' willingness to pay and delay costs. We characterize a tight bound of 5/6 on efficiency in pure strategy equilibria when there is zero latency at zero flow and a tight bound of 2√2-2 with positive latency at zero flow. These bounds are tight even when the numbers of routes and oligopolists are arbitrarily large.
Keywords: competition, congestion, externalities, networks, oligopoly
JEL Classification: D43, D45, D62
Suggested Citation: Suggested Citation