The impact of investment on price competition in unlicensed spectrum

Opening “prime” spectrum to unlicensed usage can lower the costs for offering wide area wireless services but may also lead to greater congestion due to multiple providers operating in the same band. To mitigate congestion, service providers may invest in more infrastructure or better technology. The costs of such investments must be weighed against the potential gains in revenue, which in turn will depend on the investments of other competing providers in the shared spectrum. This paper studies such trade-offs for multiple competing providers in a common unlicensed band. We extend models from earlier work on price competition with congestible resources to include the investment decisions of service providers using a common band of spectrum. Several models are considered to capture different ways investment might impact the congestion due to both a provider´s own customers and those of other providers. For each model, we study a game in which providers decide on both the level of investment and the price of their service. Interestingly, in most cases, the equilibrium of the resulting game is shown to be that only a single provider invests and charges monopoly prices. On the other hand, multiple providers may enter the market when the dominant effect of investment is to reduce congestion due to the customers of other providers.