Journal of Economics

, Volume 91, Issue 2, pp 151–176 | Cite as

Competition with Congestible Networks



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.


congestion networks Bertrand and Cournot competition 

JEL Classifications

L13 L86 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Acemoglu, D., and Ozdaglar, A. E. (2005) “Competition and Efficiency in Congested Markets.” NBER Working paper 11201.Google Scholar
  2. Bester, H., Petrakis, E. 1993The Incentives for Cost Reduction in a Differentiated IndustryInternational Journal of Industrial Organization1151934CrossRefGoogle Scholar
  3. Borger, B., Dender, K. 2005Prices, Capacities and Service Quality in a Congestible Bertrand DuopolyUniversity of AntwerpBelgium, mimeoGoogle Scholar
  4. Cheng, L. 1985Comparing Bertrand and Cournot Equilibria: a Geometric ApproachRAND Journal of Economics1614652CrossRefGoogle Scholar
  5. Crémer, J., Rey, P., Tirole, J. 2000Connectivity in the Commercial InternetJournal of Industrial Economics48433472CrossRefGoogle Scholar
  6. Dastidar, K. 1995On the Existence of Pure Strategy Bertrand EquilibriumEconomic Theory51932CrossRefGoogle Scholar
  7. Dender, K. 2005Duopoly Prices under Congested AccessJournal of Regional Science45343362CrossRefGoogle Scholar
  8. Engel, E., Fischer, R., and Galetovic, A. (2004): “Toll Competition among Congested Roads.” Topics in Economic Analysis and Policy, BEPRESS 4(1): Article 4.Google Scholar
  9. Grilo, I., Shy, O., Thisse, J.–F. 2001Price Competition when Consumer Behavior is Characterized by Conformity or VanityJournal of Public Economics80385408CrossRefGoogle Scholar
  10. Häckner, J., Razo, C. 1996Vanity and Congestion: A Study of Reciprocal ExternalitiesEconomica6397111CrossRefGoogle Scholar
  11. Kreps, D., Scheinkman, J. 1983Quantity Precommitment and Bertrand Competition Yield Cournot OutcomesBell Journal of Economics14326337CrossRefGoogle Scholar
  12. Laffont, J., Marcus, S., Rey, P., Tirole, J. 2001Internet Interconnection and the Off–Net–Cost PrincipleIDEImimeoGoogle Scholar
  13. Lambertini, L., Mantovani, A. 2001Price vs. Quantity in a Duopoly with Technological Spillovers: A Welfare Re-AppraisalKeio Economic Studies384152Google Scholar
  14. Laussel, D., Montmarin, M., Long, N. V. 2004Dynamic Duopoly with Congestion EffectsInternational Journal of Industrial Organization22655677CrossRefGoogle Scholar
  15. Maggi, G. 1996Strategic Trade Policies with Endogenous Mode of CompetitionAmerican Economic Review8623758Google Scholar
  16. Qiu, L. 1997On the Dynamic Efficiency of Bertrand and Cournot EquilibriaJournal of Economic Theory7521329CrossRefGoogle Scholar
  17. Scotchmer, S. 1985Profit-Maximizing ClubsJournal of Political Economy272545Google Scholar
  18. Singh, N., Vives, X. 1984Price and Quantity Competition in a Differentiated DuopolyRAND Journal of Economics1554654CrossRefGoogle Scholar
  19. Symeonidis, G 2003Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&DInternational Journal of Industrial Organization213955CrossRefGoogle Scholar
  20. Wolff, R. W. (1989): Stochastic Modeling and the Theory of Queues. Prentice-Hall.Google Scholar
  21. Zhao, W., Olshefski D., and Schulzrinne, H. (2000) “Internet Quality of Service: an Overview.” mimeo.Google Scholar

Copyright information

© Springer-Verlag Wien 2007

Authors and Affiliations

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

Personalised recommendations