Competition with Congestible Networks |
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Authors: | Pio Baake Kay Mitusch |
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Institution: | 1.DIW Berlin,Berlin,Germany;2.TU Berlin,Berlin,Germany |
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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 equilibrium capacities are at first increasing and then decreasing in the strength of congestion. Furthermore,
capacities are higher under Cournot competition. Welfare comparisons between Bertrand and Cournot competition are unambiguous
for fixed capacities, but may turn around for endogenous capacities. |
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Keywords: | congestion networks Bertrand and Cournot competition |
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