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Competition and Efficiency in Congested Markets

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  • Daron Acemoglu
  • Asuman E. Ozdaglar

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.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 172782000000000025.

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Date of creation: 27 Mar 2005
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Handle: RePEc:cla:levrem:172782000000000025

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  1. Novshek, William., 1983. "Perfectly Competitive Markets as the Limits of Cournot Markets," Working Papers 499, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Hart, Oliver D, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 1-30, January.
  3. Roberts, Donald John & Postlewaite, Andrew, 1976. "The Incentives for Price-Taking Behavior in Large Exchange Economies," Econometrica, Econometric Society, vol. 44(1), pages 115-27, January.
  4. Correa, Jose R. & Schulz, Andreas S. & Stier Moses, Nicolas E., 2003. "Selfish Routing in Capacitated Networks," Working papers 4319-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, September.
  6. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  7. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
  8. Benassy, Jean-Pascal, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 217-34, April.
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Cited by:
  1. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, 03.
  2. Daron Acemoglu & Kostas Bimpikis & Asuman Ozdaglar, 2006. "Price and Capacity Competition," NBER Working Papers 12804, National Bureau of Economic Research, Inc.
  3. Pio Baake & Kay Mitusch, 2004. "Competition with Congestible Networks," Discussion Papers of DIW Berlin 402, DIW Berlin, German Institute for Economic Research.
  4. 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.

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