When Should Competing Mobile Telecom Carriers Provide Sponsored Data Plans Under Cross-Side Network Effects?

Abstract

ABSTRACT The competition among mobile telecom carriers, serving as two-sided market platforms, is becoming more intensive in recent years. To gain additional profits from Internet content providers, mobile telecom carriers charge subsidization fees to Internet content providers by providing sponsored data plans wherein end users are subsidized by Internet content providers for the cost of data traffic consumption. This study employs a game-theoretical model to investigate the optimal strategies of competing mobile telecom carriers on providing sponsored data plans under cross-side network effects. We find that both mobile telecom carriers (only one mobile telecom carrier, neither mobile telecom carrier) will provide sponsored data plans in Nash equilibrium when the cross-side network effects are weak (moderate, strong). Also, considering the effect of sponsored data plan in terms of the increment in both the total number of end users and the average amount of data traffic each end user consumes, we find that both mobile telecom carriers (only one mobile telecom carrier) will provide sponsored data plans in Nash equilibrium when the effect of sponsored data plan is weak or strong (moderate). Moreover, in the scenario wherein a proportion of end users multi-home to mobile telecom carriers, we verify that end users’ multi-homing will conditionally benefit or hurt mobile telecom carriers, which is also a novel finding different from prior studies. In the scenario wherein end users are partially subsidized, when the cross-side network effects are not too large, the larger mobile telecom carrier will always totally subsidize end users while the smaller mobile telecom carrier may choose to totally, partially, or not subsidize end users.