Competition in secondary spectrum markets: Price war or market sharing?

Abstract

Recent initiatives allow cellular providers to offer spot service of their licensed spectrum, paving the way to dynamic secondary spectrum markets. This paper characterizes market outcomes when multiple providers are drawn into competition for secondary demand. We study a game-theoretic model in which each provider aims to enhance its revenue by opportunistically serving secondary demand, while also serving dedicated primary demand. The secondary demand is a function of the price being charged. We consider two philosophies 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 coordinated access leads to a price war. In particular market sharing above the break-even price is not an equilibrium outcome. This conclusion is valid for arbitrary secondary-demand functions. While the demand function does not play a part in determining the winner, it does affect the price of secondary access as exercised by the winning provider. In uncoordinated access, primary and secondary users share spectrum on equal basis, akin to the sharing modality of ISM bands. We demonstrate 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.