Competition among providers in loss networks

Communication networks are becoming ubiquitous and more and more competitive among revenue-maximizing providers, operating on potentially different technologies. In this paper, we propose to analyze thanks to game theory the competition of providers playing with access prices and fighting for customers. Considering a slotted-time model, the part of demand exceeding capacity is lost and has to be resent. We consider an access price for submitted packets, thus inducing a congestion pricing through losses. Customers therefore choose the provider with the cheapest average price per correctly transmitted unit of traffic. The model is a two-level game, the lower level for the distribution of customers among providers, and the upper level for the competition on prices among providers, taking into account what the subsequent repartition at the lower level will be. We prove that the upper level has a unique Nash equilibrium, for which the user repartition among different available providers is also unique, and, remarkably, efficient in the sense of social welfare (with a so-called price of anarchy equal to one). Moreover, even when adding a higher level game on capacity disclosure with a possibility of lying for providers, providers are better off being truthful, and the unique Nash equilibrium is thus unchanged. Copyright Springer Science+Business Media, LLC 2012