Journal of Economics

, Volume 91, Issue 2, pp 151–176

Competition with Congestible Networks

Article

DOI: 10.1007/s00712-006-0242-2

Cite this article as:
Baake, P. & Mitusch, K. J Econ (2007) 91: 151. doi:10.1007/s00712-006-0242-2

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.

Keywords

congestion networks Bertrand and Cournot competition 

JEL Classifications

L13 L86 

Copyright information

© Springer-Verlag Wien 2007

Authors and Affiliations

  1. 1.DIW BerlinBerlinGermany
  2. 2.TU BerlinBerlinGermany