Congestion and Choice of Capacity: Should Competition Exist between Internet Service Providers?

Abstract

We are interested in this model in Internet Service Providers providing to their customers the use of the resources of their own network which are obviously subject to congestion. We show that the existence of congestion can, when firms provide differentiated services and choose initially their network's capacity, totally eliminate competition. Indeed, the only possible equilibria of the game are either parallel monopolies situations where the market is not covered or intermediate situations where the market is just covered but never duopoly situations where the market of each firm is limited by the existence of the competitor.