Demand-Invariant Price Relationships and Market Outcomes in Competitive Private Commons

Abstract

We introduce a private commons model that consists of network providers who serve a fixed primary demand and strategically price to improve their revenues from an additional secondary demand. For general forms of secondary demand, we establish the existence and uniqueness of two characteristic prices: the break-even price and the market sharing price. We show that the market sharing price is always greater than the break-even price, leading to a price interval in which a provider is both profitable and willing to share the demand. Making use of this result, we give insight into the nature of market outcomes.