Competition and Efficiency in Congested Markets

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.