Competition and Efficiency in Congested Markets

  • Authors:
  • Daron Acemoglu;Asuman Ozdaglar

  • Affiliations:
  • Department of Economics, Massachusetts Institute of Technology, E52-380B, 77 Massachusetts Avenue, Cambridge, Massachusetts 02139;Department of Electrical Engineering and Computer Science, Massachusetts Institute of Technology, 32-D630, 77 Massachusetts Avenue, Cambridge, Massachusetts 02139

  • Venue:
  • Mathematics of Operations Research
  • Year:
  • 2007

Quantified Score

Hi-index 0.00

Visualization

Abstract

We study the efficiency of oligopoly equilibria (OE) 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 when there is zero latency at zero flow and a tight bound of 2√2 - 2 with positive latency at zero flow. These bounds are tight even when the numbers of routes and oligopolists are arbitrarily large.