The Economics of Competition and Cooperation Between MNOs and MVNOs

Abstract: In this work, we consider the economics of the interaction between Mobile Virtual Network Operators (MVNOs) and Mobile Network Operators (MNOs). We investigate the incentives of an MNO for offering some of her resources to an MVNO instead of using the resources for her own. We formulate the problem as a sequential game. We consider a market with one MNO and one MVNO, and a continuum of undecided end-users. We assume that EUs have different preferences for the MNO and the MVNO. These preferences can be because of the differences in the service they are offering or the reluctance of an EU to buy her plan from one of them. We assume that the preferences also depend on the investment level the MNO and the MVNO. We show that there exists a unique interior SPNE, i.e. the SPNE by which both SPs receive a positive mass of EUs, and characterize it. We also consider a benchmark case in which the MNO and the MVNO do not cooperate, characterize the unique SPNE of this case, and compare the results of our model to the benchmark case to assess the incentive of the MNO to invest in her infrastructure and to offer it to the MVNO.