Competition and Efficiency in Congested Markets

45 Pages Posted: 19 Apr 2005 Last revised: 11 Aug 2022

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: March 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. This bound is tight even when the number of routes and oligopolists is arbitrarily large. We also study the efficiency properties of mixed strategy equilibria.

Suggested Citation

Acemoglu, Daron and Ozdaglar, Asuman E., Competition and Efficiency in Congested Markets (March 2005). NBER Working Paper No. w11201, Available at SSRN: https://ssrn.com/abstract=689382

Daron Acemoglu (Contact Author)

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Asuman E. Ozdaglar

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

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