Join / Sign In
< Back to questions :: Q&A / B2B / Computers

Congestion's reduce

From Bolivia
To Cuba
63 views / 0 experts
Nov 16, 2020

Should competing firms cooperate to reduce congestion?

1 answer

Munmun S.
Not rated
Nov 16, 2020

Consider two profit-maximizing service firms in the presence of congestion-sensitive customers. Firms set their prices and compete to capture market share. We compare cases where the firms can invest either independently (competition) or jointly (co-opetition) in congestion-reduction (CR) activities. Using a stylized analytical model, we find that when the market is covered (that is when everyone buys a product), the firm with a lower marginal CR cost earns more profit under competition than under co-opetition. When the market is uncovered, co-opetition is more profitable if the joint marginal CR cost is less than a threshold. We find that when the market is covered, neither firm makes any CR investment but when the market is uncovered, there will be a CR investment provided the marginal CR cost is lower than a threshold. Our analysis shows that when prices are regulated, firms under competition make CR investments but firms under co-opetition do not. The impact of proximity on each firm’s choice of location under competition and co-opetition are different. We find that if the marginal CR cost under joint investment is larger than a cutoff, then social welfare is also higher under competition than under co-opetition.

read more
No comm.

Top Rated Experts

Ashwin Kamath
Ashwin K.
Imad Kassir
Imad K.
Amber Stellingwerf
Amber S.
This website uses cookies. By using this website, you consent to our use of these cookies