Competition in Private Commons: Price War or Market Sharing?

Abstract

This paper characterizes the outcomes of secondary spectrum markets when multiple providers compete for secondary demand. We study a competition model in which each provider aims to enhance its revenue by opportunistically serving a price-dependent secondary demand, while also serving dedicated primary demand. We consider two methodologies for sharing spectrum between primary and secondary demand: In coordinated access, spectrum providers have the option to decline a secondary access request if that helps enhance their revenue. We explicitly characterize a break-even price such that profitability of secondary access provision is guaranteed if secondary access is priced above the break-even price, regardless of the volume of secondary demand. Consequently, we establish that competition among providers that employ optimal coordinated access leads to a price war, as a result of which the provider with the lowest break-even price captures the entire market. This result holds for arbitrary secondary demand functions. In uncoordinated access, primary and secondary users share spectrum on equal basis, akin to ISM bands. Under this policy, we characterize a market sharing price that determines a provider's willingness to share the market. We show an instance where the market sharing price is strictly greater than the breakeven price, indicating that market equilibrium in an uncoordinated access setting can be fundamentally different as it opens up the possibility of providers sharing the market at higher prices.