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Competition and Efficiency in Congested Markets


  • Daron Acemoglu
  • Asuman E. Ozdaglar


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

    1. Oliver D. Hart, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Oxford University Press, vol. 46(1), pages 1-30.
    2. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
    3. Jean-Pascal Benassy, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 217-234.
    4. Novshek, William, 1985. "Perfectly competitive markets as the limits of cournot markets," Journal of Economic Theory, Elsevier, vol. 35(1), pages 72-82, February.
    5. Roberts, Donald John & Postlewaite, Andrew, 1976. "The Incentives for Price-Taking Behavior in Large Exchange Economies," Econometrica, Econometric Society, vol. 44(1), pages 115-127, January.
    6. 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.
    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. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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    Cited by:

    1. Acemoglu, Daron & Bimpikis, Kostas & Ozdaglar, Asuman, 2009. "Price and capacity competition," Games and Economic Behavior, Elsevier, vol. 66(1), pages 1-26, May.
    2. Goyal, S., 2018. "Heterogeneity and Networks," Cambridge Working Papers in Economics 1812, Faculty of Economics, University of Cambridge.
    3. SertaƧ OruƧ & Scott Cunningham, 2014. "Transmission Rights to the Electrical Transmission Grid in the Post Liberalization Era," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 5(4), pages 686-705, December.
    4. Pio Baake & Kay Mitusch, 2007. "Competition with Congestible Networks," Journal of Economics, Springer, vol. 91(2), pages 151-176, June.
    5. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, March.
    6. 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.

    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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