Price Wars in Secondary Spectrum Markets - 11/15/2011

Emir Kavurmacioglu

Title: Price Wars in Secondary Spectrum Markets

ABSTRACT

Recent developments allow cell phone providers to pro- vide spot service of their licensed spectrum, resulting in secondary spectrum markets. In this paper, we in- vestigate the market outcomes where multiple providers are drawn into a competition. These providers are as- sumed to be in the presence of dedicated primary users and opportunistic secondary users, the demand of which is proportional to the price being charged. When each provider implements a threshold based optimal coordinated access policy,we prove the existence of a break- even price for each provider, which guarantees profitability as long as the provider sets its price above or equal to this value. The break-even price possesses the fundamental property of being insensitive to the specific shape of the demand function of secondary users. Next, we establish that under the optimal coordinated access policy, collusion between providers is not possible, therefore a price war ensues. We show that the provider with the lowest break-even price is the winner of this price war. Since secondary demand has no im- pact on the break-even price, neither does the outcome of the price war. However, once a winner is determined, we show that it adjusts its price once more to maximize profit, which does depend on the secondary demand. We further provide an insight to the dynamics that lead to the market equilibrium. Next, we demonstrate that the market equilibrium in an uncoordinated access can be fundamentally different from the coordinated access case, where such a policy opens up the possibility of collusion between the providers.

-- JiaxiJin - 09 Dec 2011