Prices, capacities and service quality in a congestible Bertrand duopoly
AbstractWe study the duopolistic interaction between congestible facilities that supply perfect substitutes. Firms are assumed to make sequential decisions on capacities and prices. Since the outcomes directly affect consumersâ€™ time cost of accessing or using a facility, the capacity sharing rule is endogenous. We study this two-stage game for different firm objectives and compare the duopoly outcomes with those under monopoly and at the social optimum. Our findings include the following. First, for profit maximizing firms both capacity provision and service quality, defined as the inverse of time costs of using the facility, are distorted under duopoly: they are below the socially optimal levels. This contrasts with the monopoly outcome, where pricing and capacity provision are such that the monopolist does provide the socially optimal level of service quality. Second, duopoly prices are lower than monopoly prices, but higher than in the social optimum. Hence, while price competition between duopolists yields benefits for consumer, capacity competition is harmful. Third, price-capacity competition implies that higher capacity costs may lead to higher profits for both facilities. Finally, if firms also care about output, this mainly affects pricing behavior; strategic interaction in capacities are much less affected. If duopolists attach a higher weight to output and a correspondingly lower weight to profits, this leads to a deterioration of the quality of service.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of California Transportation Center in its series University of California Transportation Center, Working Papers with number qt1k51437c.
Date of creation: 01 Sep 2005
Date of revision:
Contact details of provider:
Postal: 109 McLaughlin Hall, Mail Code 1720, Berkeley, CA 94720-1720
Web page: http://www.escholarship.org/repec/uctc/
More information through EDIRC
congestion; price-capacity games; imperfect competition; Social and Behavioral Sciences;
Other versions of this item:
- Bruno De Borger & Kurt Van Dender, 2005. "Prices, capacities and service quality in a congestible Bertrand duopoly," ERSA conference papers ersa05p221, European Regional Science Association.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- van den Berg, Vincent A.C., 2012.
"Auctions for private congestible infrastructures,"
40103, University Library of Munich, Germany.
- De Borger, B. & Dunkerley, F. & Proost, S., 2007.
"Strategic investment and pricing decisions in a congested transport corridor,"
Journal of Urban Economics,
Elsevier, vol. 62(2), pages 294-316, September.
- DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2006. "Strategic investment and pricing decisions in a congested transport corridor," Working Papers 2006021, University of Antwerp, Faculty of Applied Economics.
- De Borger Bruno & Dunkerley Fay & Proost Stef, 2006. "Strategic investment and pricing decisions in a congested transport corridor," Energy, Transport and Environment Working Papers Series ete0602, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
- Borger Bruno De & Dunkerley Fay & Proost Stef, 2008.
"The Interaction between Tolls and Capacity Investment in Serial and Parallel Transport Networks,"
Review of Network Economics,
De Gruyter, vol. 7(1), pages 1-23, March.
- DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2006. "The interaction between tolls and capacity investment in serial and parallel transport networks," CORE Discussion Papers 2006113, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bruno De Borger & Fay Dunkerley & Stef Proost, 2006. "The interactin between tolls and capacity investment in serial and parallel transport networks," Center for Economic Studies - Discussion papers ces0617, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- De Borger Bruno & Dunkerley Fay & Proost Stef, 2006. "The interaction between tolls and capacity investment in serial and parallel transport networks," Energy, Transport and Environment Working Papers Series ete0607, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
- de Palma, André & Kilani, Moez & Lindsey, Robin, 2007. "Maintenance, service quality and congestion pricing with competing roads," Transportation Research Part B: Methodological, Elsevier, vol. 41(5), pages 573-591, June.
- Ubbels, Barry & Verhoef, Erik T., 2008.
"Governmental competition in road charging and capacity choice,"
Regional Science and Urban Economics,
Elsevier, vol. 38(2), pages 174-190, March.
- Barry Ubbels & Erik Verhoef, 2006. "Governmental Competition in Road Charging and Capacity Choice," Tinbergen Institute Discussion Papers 06-036/3, Tinbergen Institute, revised 10 Sep 2007.
- Xiao, Feng & Yang, Hai & Han, Deren, 2007. "Competition and efficiency of private toll roads," Transportation Research Part B: Methodological, Elsevier, vol. 41(3), pages 292-308, March.
- Van Dender, Kurt, 2007. "Determinants of fares and operating revenues at US airports," Journal of Urban Economics, Elsevier, vol. 62(2), pages 317-336, September.
- Vincent Van Den Berg, 2011. "The effect of private road supply on the volume/capacity ratio when firms compete Stackelberg in Road Capacity," ERSA conference papers ersa11p1203, European Regional Science Association.
- Vincent A.C. van den Berg & Erik T. Verhoef, 2011. "Is the Service Quality of Private Roads too Low, too High, or just Right when Firms compete Stackelberg in Capacity?," Tinbergen Institute Discussion Papers 11-079/3, Tinbergen Institute, revised 02 Aug 2012.
- Chou, Yon-Chun & Chung, Hsien-Jung, 2009. "Service-based capacity strategy for manufacturing service duopoly of differentiated prices and lognormal random demand," International Journal of Production Economics, Elsevier, vol. 121(1), pages 162-175, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If references are entirely missing, you can add them using this form.