Duopoly prices under congested access

Author: Van Dender, Kurt

Source: Journal of Regional Science, Volume 45, Number 2, May 2005 , pp. 343-362(20)

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Abstract:

Consider two firms, at different locations, supplying a homogenous good at constant marginal production cost. Consumers incur travel costs to the firm for each unit purchased, and the travel costs increase with the amount of travel to each firm (congestion). When all traffic and all congestion are generated by travel to a duopolist, both the Nash–Bertrand equilibrium prices and the Nash–Cournot equilibrium prices exceed the sum of the marginal production cost and the marginal external travel cost. However, when the road is shared by travelers to the duopolists' facilities and travelers in competitive markets, the Nash–Bertrand duopoly price equals the competitive price and the Nash–Cournot price contains a markup.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.0022-4146.2005.00374.x

Affiliations: 1: Department of Economics, University of California Irvine, Irvine, CA 92697-5100., Email: kvandend@uci.edu

Publication date: 2005-05-01