Profit incentive in a secondary spectrum market: A contract design approach

Abstract

In this paper we formulate a contract design problem where a primary license holder wishes to profit from its excess spectrum capacity by selling it to potential secondary users/buyers. It needs to determine how to optimally price the excess spectrum so as to maximize its profit, knowing that this excess capacity is stochastic in nature, does not come with exclusive access, and cannot provide deterministic service guarantees to a buyer. At the same time, buyers are of different types, characterized by different communication needs, tolerance for the channel uncertainty, and so on, all of which a buyer's private information. The license holder must then try to design different contracts catered to different types of buyers in order to maximize its profit. We address this problem by adopting as a reference a traditional spectrum market where the buyer can purchase exclusive access with fixed/deterministic guarantees. We fully characterize the optimal solution in the cases where there is a single buyer type, and when multiple types of buyers share the same, known channel condition as a result of the primary user activity. In the most general case we construct an algorithm that generates a set of contracts in a computationally efficient manner, and show that this set is optimal when the buyer types satisfy a monotonicity condition.