Analysis of Duopoly Price Competition Between WLAN Providers

Abstract

With the rapid development of wireless Internet services, several WLAN service providers may coexist in one public hotspot to compete for the same group of customers, leading to an inevitable price competition. The charged price and the provisioned packet loss at each provider are major factors in determining users' demands and behaviors, which in turn will affect providers' revenue and social welfare. In this paper, we set up a novel game model to analyze a duopoly price competition. We first show the users' demands are distributed between providers according to a Wardrop equilibrium and then prove the existence of a Nash equilibrium on providers' charged prices. Through analysis, we further find that in Nash equilibrium state the social welfare is very close to its maximal value in cooperative situation. Furthermore, the providers' aggregate revenues also do not decrease when the users have high sensitivity about the charged prices. Thus the competitive duopoly WLAN market can still run in an efficient way even in the absence of complex regulation schemes.