Working Paper: NBER ID: w11201
Authors: Daron Acemoglu; Asuman Ozdaglar
Abstract: 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.
Keywords: competition; efficiency; congestion; oligopoly; network flows
JEL Codes: D43; C62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing competition (L13) | Increased inefficiency (D61) |
| Negative congestion externalities (D62) | Increased inefficiency (D61) |
| Increasing competition (L13) | Deviation from efficient allocation (D61) |
| Monopoly pricing (D42) | Internalization of externalities (D62) |
| Transition to duopoly (D43) | Increased inefficiency (D61) |
| Mixed strategy equilibria (C73) | Arbitrarily inefficient outcomes (D61) |