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Competition with Congestible Networks

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Author Info
Pio Baake
Kay Mitusch

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Abstract

We analyse competition between two network providers when the quality of each network depends negatively on the number of customers connected to that network. With respect to price competition we provide a sufficient condition for the existence of a unique pure strategy Nash equilibrium. Comparative statics show that as the congestion effect gets stronger quantities will decrease and prices increase, under both Bertrand and Cournot competition. In an example with endogenous capacities it turns out that capacities are strategic substitutes for both modes of ensuing competition. Welfare comparisons between Bertrand and Cournot competition are unambiguous for fixed capacities, but may turn around for endogenous capacities.

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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 402.

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Length: 23 p.
Date of creation: 2004
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Publication status: Published in: Journal of Economics 91 (2007), No. 2, 151-176
Handle: RePEc:diw:diwwpp:dp402

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Related research
Keywords: Congestion Networks Bertrand and Cournot competition

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  2. CRÉMER, Jacques & REY, Patrick & TIROLE, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
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  3. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
  4. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1999. "Toll competition among congested roads," Documentos de Trabajo 54, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
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  5. Scotchmer, Suzanne, 1985. "Profit-maximizing clubs," Journal of Public Economics, Elsevier, vol. 27(1), pages 25-45, June. [Downloadable!] (restricted)
  6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fabio M. Manenti, 2002. "Congestion, Private Peering and Capacity Investment on the Internet," Industrial Organization 0212003, EconWPA, revised 08 Apr 2003. [Downloadable!]
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This page was last updated on 2008-7-22.

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