Competition with Congestible Networks

Pio Baake and Kay Mitusch

No 402, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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 capacities are strategic substitutes for both modes of ensuing competition. Welfare comparisons between Bertrand and Cournot competition are unambiguous for fixed capacities, but may turn around for endogenous capacities.

Keywords: Congestion; Networks; Bertrand and Cournot competition (search for similar items in EconPapers)
JEL-codes: L13 L86 (search for similar items in EconPapers)
Pages: 23 p.
Date: 2004
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Competition with Congestible Networks (2007)
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