Multiproduct Competition between Congestible Networks
42 Pages Posted: 1 Dec 1998
Date Written: November 27, 1998
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: Suggested Citation