Abstract
In this paper, we study a vertically differentiated duopoly market, where competitors (mobile service providers) offer mobile subscriptions to customers, who diversify in their preferences regarding price and quality. We consider a two-stage game where the players first select the quality and then begin a competitive process for the price or quantity, which is widely known as Bertrand or Cournot game, respectively. To capture the service provider strategy, we first introduce variable costs to improve the quality, which are linear in quality per a subscription, and then derive the market-related metrics of interest for the tractable uniform distribution of the customer’s taste parameter. Further relaxing this strong assumption, we provide with a numerical procedure that helps characterize an arbitrary taste distribution as well as an arbitrary cost function. Finally, selected numerical examples report on the comparison between the uniform and the truncated exponential distribution, thus accentuating the importance of choosing an appropriate customer taste model.
This work is supported by the Finnish Cultural Foundation (Suomen Kulttuurirahasto) and by the project TT5G: Transmission Technologies for 5G.
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Notes
- 1.
We remind that if \(s^*_1=s^*_2\) then \(p^*_1=p^*_2\), and the active customers with the positive utility are indifferent to choosing either of the SPs. In this case, the demand is equally shared between the SPs and leads to equal market indicators for them.
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Galinina, O. et al. (2017). Comparing Customer Taste Distributions in Vertically Differentiated Mobile Service Markets. In: Duan, L., Sanjab, A., Li, H., Chen, X., Materassi, D., Elazouzi, R. (eds) Game Theory for Networks. GameNets 2017. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, vol 212. Springer, Cham. https://doi.org/10.1007/978-3-319-67540-4_13
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