Multiproduct Competition between Congestible Networks

42 Pages Posted: 1 Dec 1998

See all articles by Richard J. Gibbens

Richard J. Gibbens

University of Cambridge

Robin A. Mason

University of Southampton - Division of Economics; Centre for Economic Policy Research (CEPR)

Richard Steinberg

University of Cambridge - Judge Business School

Date Written: November 27, 1998

Abstract

This paper analyzes 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 is demand-dependent. The 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.

JEL Classification: D43, L13, L96

Suggested Citation

Gibbens, Richard J. and Mason, Robin and Steinberg, Richard Jay, Multiproduct Competition between Congestible Networks (November 27, 1998). Available at SSRN: https://ssrn.com/abstract=136739 or http://dx.doi.org/10.2139/ssrn.136739

Richard J. Gibbens

University of Cambridge ( email )

Statistical Laboratory
CB3 0DS Cambridge
United Kingdom
+44 1223 337945 (Phone)
+44 1223 337956 (Fax)

Robin Mason (Contact Author)

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3268 (Phone)
+44 23 8059 3858 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Richard Jay Steinberg

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 1223 339638 (Phone)
+44 1223 339701 (Fax)

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