Competition and efficiency in congested markets
By: Daron Acemoglu [and] Asuman Ozdaglar
Contributors: Ozdaglar, Asuman E.; Massachusetts Institute of Technology. Dept. of Economics
Edition: Rev.
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 05-06 [2006]; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 05-06.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Number of pages: 48
Description: 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[square root of]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 Classifications: D43, D45, D62.
Notes: "February 16, 2005 -- Revised: January 20, 2006."

Includes bibliographical references (p. 45-48).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.