Congestible facility rivalry in vertical structures

This paper investigates rivalry between congestible facilities and its effects on facility charges, capacities and congestion delays. By incorporating the downstream carriers into the analysis, we find that: (i) the duopoly facilities have lower prices than the monopolist, but they offer lower service quality only if capacity decisions are made prior to facility price decisions. When the capacity and price decisions are made simultaneously, the duopolists will provide the same service quality as the monopolist. (ii) Conditional on facility charges, the monopolist will have the same capacity investment rules as the central planner if and only if the downstream carrier markets are perfectly competitive at both facilities. If there is one carrier market that is imperfectly competitive, the monopoly capacity rules will be different from the socially optimal capacity rules. (iii) The monopolist will offer the same service quality at a facility as the central planner if the carrier market is perfectly competitive; otherwise, the monopolist offers a higher service level than the central planner. We also find that for given capacities, (a) the duopolists' equilibrium prices increase with the time costs of either consumers or carriers, (b) entrance of a new carrier to any of the facilities depresses the prices charged by both facilities, and (c) lower marginal cost of the carriers at one facility induces a higher price at that facility but a lower price at the other facility.