Wireless local area network service providers’ price competition in presence of heterogeneous user demand

Abstract

Consider wireless local area network (WLAN) service providers (SPs) operating in an overlapping service area. The SPs compete with each other to attract users. The price charged is utilised by the SPs as a tool to maximise revenue, resulting in a price competition between the WLAN SPs. The users are assumed to be selfish, trying to maximise their individual utility. They have varied sensitivity towards quality of service experienced and the price charged. In such a scenario, the user demand distribution is the one that achieves Wardrop equilibrium. Approximate analytical expressions are obtained for the best response of SPs to each other's price. Existence of a Nash equilibrium (NE) between the competing SPs is proved and the price vector at which the NE occurs is obtained. It is found that, while in one extreme monopoly leads to very high revenue for WLAN SPs with minimal consumer surplus, in the other extreme unregulated duopoly/oligopoly leads to high consumer surplus at the cost of minimal revenue generation for the competing SPs. Thus, price regulation is proposed in the WLAN market for equitable distribution of the surplus among the SPs and the users.