Wireless Service Pricing Competition Under Network Effect, Congestion Effect, and Bounded Rationality

Abstract

Mobile social networks have greatly strengthened people's online social interactions, generating massive volume of mobile data traffic, and bringing remarkable revenues to the wireless service providers. Meanwhile, the potential revenue growth is restrained by the network capacity of physical communication infrastructure and also challenged by the competition among service providers. In this paper, we study the pricing strategies of multiple service providers in a competitive data service market, where mobile users’ data consumption behaviors are influenced by two effects: the positive network effect and the congestion effect. To analyze the strategic interactions between mobile users and service providers, we devise a two-stage Stackelberg game consisting a pricing game in Stage I and a usage game in Stage II, respectively. In particular, for the usage game, we characterize the equilibrium solution and establish its uniqueness. For the pricing game, our analysis indicates that a mixed-strategy equilibrium solution is guaranteed for the scenario with rational providers as well as the scenario with providers of bounded rationality. We further develop a distributed learning algorithm for finding a mixed-strategy equilibrium solution in the second scenario. Our numerical results provide insights into how positive the network effect and the congestion effect would impact the system performance, and demonstrate that the bounded rational behavior incurs degradation to service providers’ revenues.