Competition and Efficiency in Congested Markets
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NBER Working Paper No. 11201
Issued in March 2005
NBER Program(s): EFG LS
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.
Published: Acemoglu, Daron and Asuman Ozdaglar. "Competition and Efficiency in Congested Markets." Mathematics of Operations Research 32 (February 2007): 1-31.
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