A novel pricing strategy for mobile broadband carriers using two-stage Stackelberg model

Abstract

The mobile data traffic experienced an explosive growth in the last decade. However, the revenues of mobile broadband carriers do not improve correspondingly. Recently, more and more content and application providers begin to deliver Internet service to users directly and gain great profits without constructing the broadband network. In this paper, we present a new business strategy that involves a priority-based pricing policy for users and a cooperation strategy for content providers and mobile broadband carriers. We propose a two-stage Stackelberg model in a duopolistic mobile network market. We find that the equal data arrival rate to the mobile broadband carriers is only one stable state in the follower game. However, both the equilibrium outcome in the leader game and the preferred strategy profile of social planner depend on customers’ preference and the revenue rate of content providers. We outline the condition under which mobile broadband carriers and social planner obtain a win-win result. More specifically, when revenue rate is sufficiently low, the carriers should adopt the non-intellectualized pricing model if the arrival rate of H-type consumers (i.e., hating to delay) is more than that of L-type consumers (i.e., indifference to delay), and pursue the intellectualized pricing model if the arrival rate of H-type consumers is less than that of L-type consumers. Otherwise, the carriers’ optimal pricing strategies may deviate from the social welfare maximizing ones. Hence, the social planner should take some regulatory policies to avoid the deviation.