Competition with Dynamic Spectrum Leasing

TL;DR

This paper analyzes the strategic interactions of two competing cognitive spectrum leasing operators and their impact on pricing, leasing decisions, and user benefits, revealing equilibrium behaviors and efficiency losses.

Contribution

It provides a complete equilibrium characterization of a dynamic game involving spectrum leasing and pricing with heterogeneous operators and users, including threshold policies and profit comparisons.

Findings

Operators follow simple threshold policies for leasing and pricing.

Operators always set the same equilibrium price despite cost differences.

User payoffs benefit from operator competition, with total profit loss capped at 25%.

Abstract

This paper presents a comprehensive analytical study of two competitive cognitive operators' spectrum leasing and pricing strategies, taking into account operators' heterogeneity in leasing costs and users' heterogeneity in transmission power and channel conditions. We model the interactions between operators and users as a three-stage dynamic game, where operators make simultaneous spectrum leasing and pricing decisions in Stages I and II, and users make purchase decisions in Stage III. Using backward induction, we are able to completely characterize the game's equilibria. We show that both operators make the equilibrium leasing and pricing decisions based on simple threshold policies. Moreover, two operators always choose the same equilibrium price despite their difference in leasing costs. Each user receives the same signal-to-noise-ratio (SNR) at the equilibrium, and the obtained payoff is linear in its transmission power and channel gain. We also compare the duopoly equilibrium with the coordinated case where two operators cooperate to maximize their total profit. We show that the maximum loss of total profit due to operators' competition is no larger than 25%. The users, however, always benefit from operators' competition in terms of their payoffs. We show that most of these insights are robust in the general SNR regime.