Quality Sensitive Price Competition in Spectrum Oligopoly:Part 1

Abstract: We investigate a spectrum oligopoly market where primaries lease their channels to secondaries in lieu of financial remuneration. Transmission quality of a channel evolves randomly. Each primary has to select the price it would quote without knowing the transmission qualities of its competitors' channels. Each secondary buys a channel depending on the price and the transmission quality a channel offers. We formulate the price selection problem as a non co-operative game with primaries as players. In the one-shot game, we show that there exists a unique symmetric Nash Equilibrium(NE) strategy profile and explicitly compute it. Our analysis reveals that under the NE strategy profile a primary prices its channel to render high quality channel more preferable to the secondary; this negates the popular belief that prices ought to be selected to render channels equally preferable to the secondary regardless of their qualities. We show the loss of revenue in the asymptotic limit due to the non co-operation of primaries. In the repeated version of the game, we characterize a subgame perfect NE where a primary can attain a payoff arbitrarily close to the payoff it would obtain when primaries co-operate.