ISP’s Pricing Strategy: Advance vs Simultaneous

Abstract

An internet service provider (ISP) tries to maximize profit by choosing an appropriate price for an offered service. In this paper, a system of two identical ISPs is considered. When ISPs independently choose a price to charge to maximize profit and each ISP repeatedly tries to improve profit by changing the price till no further improvements are possible, they may reach an equilibrium called the Nash equilibrium. Another strategy is that one ISP announces an appropriate price in advance and the other ISP chooses the best response strategy. This leads to Stackelberg competition. Both these strategies are compared in the paper. In this paper, it is assumed that few clients have access to multiple ISPs by using multi-SIM handheld devices such as smartphones and tablets. The clients who have access to multiple-ISPs choose an appropriate ISP for service based on the price of the service. The clients who have access to only one ISP, have no choice but to take service from the ISP. Simulations show that the ISP who announces an appropriate price in advance is likely to do better as compared to the ISP who decides the price later after observing the price of the announcer. Simulations also show that announcing an appropriate price in advance is better instead of independently deciding the price which may lead to a Nash equilibrium in terms of profit of the ISPs and quality of service provided to the clients.