A Game-Theoretic Model of Virtual Operators Competition in a Two-Sided Telecommunication Market

Abstract

This paper considers a market where two large companies provide services to the population through “cloud” virtual operators buying companies’ services and reselling them to clients. Each large company assigns a price for selling its services to virtual operators. Also the number of its clients and its resource (a characteristic of company’s attractiveness for clients) are known. The game process is a repetition of two-step games where virtual operators choose companies and prices for their services. Each virtual operator needs to choose a company whose services he is going to sell and also to define a price for the services to be sold to clients. Each virtual operator establishes the probability to choose the company and the price for services, taking into account that the partition of company’s clients choosing a given operator is defined by the Hotelling specification. At each step, each virtual operator seeks to maximize his payoff. We find the optimal strategies of the virtual operators and also explore the following question. Does the system achieve some stationary state in this repeated two-step game or a repeating cycle of states is formed instead?