Blocking Predation in Cellular Monopoly Through Non-Linear Spectrum Pricing

Predation refers to the strategic reduction of market price by a monopolist in order to eradicate its potential competitors. We investigate this strategy in a single service provider (SP) dominated cellular network for two different cases: 1) when a new contender attempts to enter into the network and 2) when the contender has already entered and is co-existing with the dominant SP. In both the cases, the sole objective of the predating SP is driving its opponent into losses, therefore discouraging its entry/stay in the market. In this letter, with the assumption that the government is sole provider of bandwidth and infrastructure, we establish the followings: 1) if the spectrum pricing is linear, then the pre-existing SP can always succeed in predation and 2) on the other hand, if government switches to quadratic spectrum pricing, then it is always possible to restrain the predatory behavior.