Competition with Congestible Networks Article First Online: 22 March 2007 Received: 12 March 2006 Revised: 04 August 2006 DOI:
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 References
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