Service Provider Strategies in Telecommunications Markets : Analytical and Simulation Analysis

The telecommunications market has evolved into product-differentiatedmarkets due to the varying quality of data services. Earlier work has takenonly the price into account and has not considered quality, which is, however,an essential factor. We provide a supply-demand framework considering bothprice and quality of service, and analyze the different incumbents and entrants'strategies in offering services that vary in price-quality dimensions. Equilibriaare determined over customer preferences on different price-quality plans on of-fer. We model supply curves with varying elasticities to differentiate betweenincumbents and entrants. Similarly, demand curves with varying elasticitiesexhibit consumer preferences. We also prove a theorem which shows that themaximum quantity supplied at equilibrium is for a unit elastic demand andthe maximum elasticity of supply. Our results give us a mathematical under-standing of the telecommunications market in terms of price and quality andshow that incumbents should target high-paying quality-conscious consumersin order to gain additional share in the market