Market structure in congestible markets

Lee, In Ho and Mason, Robin (2001) Market structure in congestible markets European Economic Review, 45, (4-6), pp. 809-818. (doi:10.1016/S0014-2921(01)00130-1).


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This paper analyses market structure of industries that are subject to both positive and negative network effects. The size of a firm determines the quality of its product: when network effects are positive, a larger firm is of higher quality; when the effects are negative, a larger firm's product is of lower quality. Consumers have heterogeneous preferences towards quality (firm size), and firms compete in prices. Equilibria are characterised: for example, in any asymmetric equilibrium, it must be that congestion is not too severe. One consequence of this feature is that an increase in the number of firms in the industry can raise individual firms’ profits. Two factors can bound the number of firms in a free-entry equilibrium without fixed costs: expectations, and the ‘finiteness’ property (Shaked and Sutton, Review of Economic Studies 49 (1982) 3–13, Econometrica 51(5) (1983) 1469–1483) of price competition.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/S0014-2921(01)00130-1
ISSNs: 0014-2921 (print)
Keywords: congestion, networks, market structure
ePrint ID: 32982
Date :
Date Event
Date Deposited: 15 May 2006
Last Modified: 16 Apr 2017 22:18
Further Information:Google Scholar

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