Efficiency Analysis of Cournot Competition in Service Industries with Congestion

Georgia Perakis () and Wei Sun ()
Additional contact information
Georgia Perakis: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Wei Sun: IBM T. J. Watson Research Center, Yorktown Heights, New York 10598

Management Science, 2014, vol. 60, issue 11, 2684-2700

Abstract: We consider Cournot competition in the presence of congestion effects. Our model consists of several service providers with differentiated services, each competing for users who are sensitive to both price and congestion. We distinguish two types of congestion effects, depending on whether spillover costs exist, that is, where one service provider's congestion cost increases with the other providers' output level. We quantify the efficiency of an unregulated oligopoly with respect to the optimal social welfare with tight upper and lower bounds. We show that, when there is no spillover, the welfare loss in an unregulated oligopoly is limited to 25% of the social optimum, even in the presence of highly convex costs. On the other hand, when spillover cost is present, there does not exist a constant lower bound on the efficiency of an unregulated oligopoly, even with affine cost. We show that the efficiency depends on the relative magnitude between the marginal spillover cost and the marginal benefit to consumers. This paper was accepted by Christian Terwiesch, operations management .

Keywords: efficiency analysis; price of anarchy; congestion; convex costs; service industries (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2014.1943 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:11:p:2684-2700

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().