Competition and Efficiency in Congested Markets
AbstractWe 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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Date of creation: Mar 2005
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Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-03 (All new papers)
- NEP-BEC-2005-04-03 (Business Economics)
- NEP-FMK-2005-04-03 (Financial Markets)
- NEP-MIC-2005-04-03 (Microeconomics)
- NEP-NET-2005-04-03 (Network Economics)
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