Asymmetric-valued Spectrum Auction and Competition in Wireless Broadband Services

TL;DR

This paper models the competitive dynamics between two spiteful mobile network operators with asymmetric spectrum holdings, revealing counterintuitive pricing strategies and market outcomes through a three-stage game analysis.

Contribution

It introduces a three-stage dynamic game model for spectrum auction and competition, highlighting asymmetric pricing, market share, and revenue effects in spiteful MNOs.

Findings

The MNO with less-valued spectrum lowers prices despite higher speeds.

The high-valued spectrum MNO charges higher prices but gains more market share.

Competition causes revenue losses and identifies a profit crossover point.

Abstract

We study bidding and pricing competition between two spiteful mobile network operators (MNOs) with considering their existing spectrum holdings. Given asymmetric-valued spectrum blocks are auctioned off to them via a first-price sealed-bid auction, we investigate the interactions between two spiteful MNOs and users as a three-stage dynamic game and characterize the dynamic game's equilibria. We show an asymmetric pricing structure and different market share between two spiteful MNOs. Perhaps counter-intuitively, our results show that the MNO who acquires the less-valued spectrum block always lowers his service price despite providing double-speed LTE service to users. We also show that the MNO who acquires the high-valued spectrum block, despite charing a higher price, still achieves more market share than the other MNO. We further show that the competition between two MNOs leads to some loss of their revenues. By investigating a cross-over point at which the MNOs' profits are switched, it serves as the benchmark of practical auction designs.