Multiproduct Competition between Congestible Networks

This paper analyses competition between firms who sell multiple products in the presence of negative externalities. The model involves two networks who each may offer several service classes. Service classes are generated by forming sub-networks differentiated by their congestion levels. The level of congestion on a sub-network is determined by its capacity and the number of users, i.e., quality of demand-dependent. This paper shows that networks will choose to offer only one service class, and thus not to form distinct sub-networks, in equilibrium. In addition to contributing to the theory of multiproduct competition, the paper addresses applied problems. For example, the results suggest that current proposals to implement pricing on the Internet will not be viable under competition.

[1]  F. Knight.  Some Fallacies in the Interpretation of Social Cost , 1924 .

[2]  Charles M. Tiebout.  A Pure Theory of Local Expenditures , 1956, Journal of Political Economy.

[3]  G. Hardin,et al.  The Tragedy of the Commons , 1968, Green Planet Blues.

[4]  Mark V. Pauly,et al.  Cores and clubs , 1970 .

[5]  William Vickrey,et al.  Responsive Pricing of Public Utility Services , 1971 .

[6]  Israel Luski,et al.  On Partial Equilibrium in a Queuing System with Two Servers , 1976 .

[7]  R. Schmalensee.  Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry , 1978 .

[8]  A. Shaked,et al.  Relaxing price competition through product differentiation , 1982 .

[9]  David M. Kreps,et al.  Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes , 1983 .

[10]  S. Scotchmer,et al.  Two-Tier Pricing of Shared Facilities in a Free-Entry Equilibrium , 1985 .

[11]  K. Judd.  Credible Spatial Preemption , 1985 .

[12]  Jacques-François Thisse,et al.  Segmenting the market: The monopolist's optimal product mix , 1986 .

[13]  G. Bonanno.  Location Choice, Product Proliferation and Entry Deterrence , 1987 .

[14]  Robert J. Shiller,et al.  Cointegration and Tests of Present Value Models , 1987, Journal of Political Economy.

[15]  M. Wooders,et al.  Competitive equilibrium and the core in club economies with anonymous crowding , 1987 .

[16]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[17]  Enrique G. Mendoza,et al.  Real Business Cycles in a Small Open Economy , 1989 .

[18]  Luc Leruth,et al.  The optimal product mix for a monopolist in the presence of congestion effects: A model and some results , 1989 .

[19]  André de Palma,et al.  Congestion and Game in Capacity: a Duopoly Analysis in the Presence of Network Externalities , 1989 .

[20]  A. Shaked,et al.  Multiproduct Firms and Market Structure , 1990 .

[21]  Barry Eichengreen.  Trends and Cycles in Foreign Lending , 1990 .

[22]  S. Johansen.  Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models , 1991 .

[23]  M. Hashem Pesaran,et al.  Persistence of Shocks and their Sources in a Multisectoral Model of UK Output Growth , 1992 .

[24]  Paul Klemperer,et al.  Competing Head-to-Head May be Less Competitive , 1992 .

[25]  Kenneth Kasa,et al.  Common stochastic trends in international stock markets , 1992 .

[26]  Global Versus Country-Specific Productivity Shocks and the Current Account , 1992 .

[27]  Marianne Baxter,et al.  Explaining Saving-Investment Correlations , 1993 .

[28]  Alan M. Taylor,et al.  Domestic Saving and International Capital Flows Reconsidered , 1994 .

[29]  Kenneth S. Rogoff,et al.  The Intertemporal Approach to the Current Account , 1994 .

[30]  Jesus Gonzalo,et al.  Estimation of Common Long-Memory Components in Cointegrated Systems , 1995 .

[31]  G. Fraja.  Product line competition in vertically differentiated markets , 1996 .

[32]  Alan M. Taylor.  International Capital Mobility in History: The Saving-Investment Relationship , 1996 .

[33]  M. Waterson,et al.  Product Range and Interfirm Competition , 1996 .

[34]  Andrew Whinston,et al.  A Stochastic Equilibrium Model of Internet Pricing , 1997 .

[35]  Tommaso Proietti.  Short-Run Dynamics in Cointegrated Systems , 1997 .

[36]  A. Odlyzko.  A Modest Proposal for Preventing Internet Congestion , 1997 .

[37]  Ramon Moreno.  Saving-investment dynamics and capital mobility in the US and Japan , 1997 .

[38]  David Clark,et al.  Internet cost allocation and pricing , 1997 .

[39]  Frank Kelly,et al.  Rate control for communication networks: shadow prices, proportional fairness and stability , 1998, J. Oper. Res. Soc..

[40]  Ronald Smith,et al.  The Feldstein-Horioka Puzzle and Capital Mobility: A Review , 1998 .

[41]  Søren Johansen,et al.  Some tests for parameter constancy in cointegrated VAR-models , 1999 .