Competition and Efficiency in Congested Markets

51 Pages Posted: 2 Mar 2005

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Asuman E. Ozdaglar

Massachusetts Institute of Technology (MIT) - Department of Electrical Engineering and Computer Science

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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

Acemoglu, Daron and Ozdaglar, Asuman E., Competition and Efficiency in Congested Markets (February 17, 2005). MIT Department of Economics Working Paper No. 05-06, Available at SSRN: https://ssrn.com/abstract=676662 or http://dx.doi.org/10.2139/ssrn.676662

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Asuman E. Ozdaglar

Massachusetts Institute of Technology (MIT) - Department of Electrical Engineering and Computer Science ( email )

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