Price competition with elastic traffic

In this paper, we present a combined study of price competition and traffic control in a congested network. We study a model in which service providers own the routes in a network and set prices to maximize their profits, while users choose the amount of flow to send and the routing of the flow according to Wardrop's principle. When utility functions of users are concave and have concave first derivatives, we characterize a tight bound of 2/3 on efficiency in pure strategy equilibria of the price competition game. We obtain the same bound under the assumption that there is no fixed latency cost, i.e., the latency of a link at zero flow is equal to zero. These bounds are tight even when the numbers of routes and service providers are arbitrarily large. (C) 2008 Wiley Periodicals, Inc.