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Price competition in communications networks

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Published by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, MA .
Written in English


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We study the efficiency properties of oligopoly equilibria in congested networks. Our measure of efficiency is the difference between users" willingness to pay and delay costs. Previous work has demonstrated that in networks consisting of parallel links, efficiency losses from competition are bounded. In contrast, in this paper we show that in the presence of serial links, the efficiency loss relative to the social optimum can be arbitrarily large because of the double marginalization problem, whereby each serial provider charges high prices not taking into account the effect of this strategy on the profits of other providers along the same path. Nevertheless, when there are no delay costs without transmission (i.e., latencies at zero are equal to zero), irrespective of the number of serial and parallel providers, the efficiency of strong oligopoly equilibria can be bounded by 1/2, where strong oligopoly equilibria are equilibria in which each provider plays a strict best response and all of the traffic is transmitted. However, even with strong oligopoly equilibria, inefficiency can be arbitrarily large when the assumption of no delay costs without transmission is relaxed. Keywords: competition, congestion, externalities, networks, oligopoly. JEL Classifications: D43, D45, D62.

Edition Notes

StatementDaron Acemoglu and Asuman Ozdaglar
SeriesWorking paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 06-10, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 06-10.
ContributionsOzdaglar, Asuman E., Massachusetts Institute of Technology. Dept. of Economics
The Physical Object
Pagination[13] leaves :
Number of Pages13
ID Numbers
Open LibraryOL24642814M
OCLC/WorldCa170672514

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