The Cost of Free Spectrum

Thành Nguyen (), Hang Zhou (), Randall A. Berry (), Michael L. Honig () and Rakesh Vohra ()
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Thành Nguyen: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Hang Zhou: Electrical Engineering and Computer Science Department, Northwestern University, Evanston, Illinois 60208
Randall A. Berry: Electrical Engineering and Computer Science Department, Northwestern University, Evanston, Illinois 60208
Michael L. Honig: Electrical Engineering and Computer Science Department, Northwestern University, Evanston, Illinois 60208
Rakesh Vohra: Department of Economics and Department of Electrical and Systems Engineering, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Operations Research, 2016, vol. 64, issue 6, 1217-1229

Abstract: There has been growing interest in increasing the amount of radio spectrum available for unlicensed broadband wireless access. That includes “prime” spectrum at lower frequencies, which is also suitable for wide area coverage by licensed cellular providers. While additional unlicensed spectrum would allow for market expansion, it could influence competition among providers and increase congestion (interference) among consumers of wireless services. We study the value (social welfare and consumer surplus) obtained by adding unlicensed spectrum to an existing allocation of licensed spectrum among incumbent service providers. We assume a population of customers who choose a provider based on the minimum delivered price , given by the weighted sum of the price of the service and a congestion cost, which depends on the number of subscribers in a band. We consider models in which this weighting is uniform across the customer population and where the weighting is high or low, reflecting different sensitivities to latency. For the models considered, we find that the social welfare depends on the amount of additional unlicensed spectrum, and can actually decrease over a significant range of unlicensed bandwidths. Furthermore, with nonuniform weighting, introducing unlicensed spectrum can also reduce consumer welfare.

Keywords: wireless service competition; network pricing; spectrum policy (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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