The Interplay of Competition and Cooperation Among Service Providers

We consider the economics of the interaction between Mobile Virtual Network Operators (MVNOs) and Mobile Network Operators (MNOs). We investigate the incentives of an MNO for offering some of her resources to an MVNO instead of using the resources for her own End-Users (EUs). We consider a market with one MNO and one MVNO, and a continuum of undecided EUs. Two cases for EUs are considered: (i) when EUs need to choose either the MNO or the MVNO, and (ii) when EUs have an outside option. In each of these cases, we consider a non-cooperative framework of sequential game and a cooperative framework of bargaining game. We characterize the Subgame Perfect Nash Equilibria (SPNE) and Nash Bargaining Solution (NBS) of the sequential and bargaining games, respectively. We show that in the non-cooperative framework, SPNE assumes two forms: (i) the MNO invests minimally on her infrastructure and the MVNO leases all the newly invested resources and (ii) the MNO invests more on her infrastructure, the MVNO leases only part of these resources to the MVNO, and the MNO uses the rest herself to attract EUs. Thus, in both, the MNO generates revenue indirectly through the MVNO. In addition to that, in (ii), the MNO generates revenue directly from the EUs. We also prove that in the bargaining framework, the MVNO either reserves all the resources or no resources from the MNO, and the MNO’s investments are guided by whether EUs have an outside option. If they don’t, then the MNO invests as little as possible on her infrastructure. If they do, then the MNO invests more.