In the mobile communication services, users wish to subscribe to high quality service with a low price level, which leads to competition between mobile network operators (MNOs). The MNOs compete with each other by service prices after deciding the extent of investment to improve quality of service (QoS). Unfortunately, the theoretic backgrounds of price dynamics are not known to us, and as a result, effective network planning and regulative actions are hard to make in the competitive market. To explain this competition more detail, we formulate and solve an optimization problem applying the two-stage Cournot and Bertrand competition model. Consequently, we derive a price dynamics that the MNOs increase and decrease their service prices periodically, which completely explains the subsidy dynamics in the real world. Moving forward, to avoid this instability and inefficiency, we suggest a simple regulation rule which leads to a Pareto-optimal equilibrium point. Moreover, we suggest regulator's optimal actions corresponding to user welfare and the regulator's revenue.
This paper investigates Internet service provider (ISP) incentives with a single-service class and with two-service classes in the Internet. We consider multiple competing ISPs who offer network access to a fixed user base, consisting of end-users who differ in their quality requirements and willingness to pay for the access. We model user-ISP interactions as a game in which each ISP makes capacity and pricing decisions to maximize its profits and the end-users only decide which service to buy (if any) and from which ISP. Our model provides pricing for networks with single- and two-service classes for any number of competing ISPs. Our results indicate that multiple service classes are socially desirable, but could be blocked due to the unfavorable distributional consequences that it inflicts on the existing Internet users. We propose a simple regulatory tool to alleviate the political economic constraints and thus make multiple service classes in the Internet feasible.