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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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  • Daron Acemoglu & Asuman E. Ozdaglar, 2005. "Competition and Efficiency in Congested Markets," Levine's Bibliography 172782000000000025, UCLA Department of Economics.
    • Handle: RePEc:cla:levrem:172782000000000025
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    References listed on IDEAS

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    Cited by:

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    2. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, March.
    3. Pio Baake & Kay Mitusch, 2007. "Competition with Congestible Networks," Journal of Economics, Springer, vol. 91(2), pages 151-176, June.
    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.
    5. Acemoglu, Daron & Bimpikis, Kostas & Ozdaglar, Asuman, 2009. "Price and capacity competition," Games and Economic Behavior, Elsevier, vol. 66(1), pages 1-26, May.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

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