Pricing competition of rollover data plan

Today, many mobile network operators (MNOs) provide data services through a three-part tariff data plan, which involves a fixed subscription fee, a data cap, and a per-unit fee for the data over-usage exceeding the data cap. To increase their market competitiveness, MNOs have been trying to provide more time flexibility in the data plans. One of such innovations is the rollover data plan, which allows a subscriber to use the unused data of the previous month in the current month. Depending on the consumption priority of the rollover data, different rollover data plans can have different levels of time flexibility. The interactions among multiple MNOs offering rollover data plans, however, are quite complicated and sometimes counter-intuitive. To examine this issue, in this paper we build a simple market model of two MNOs competing to serve the same pool of heterogeneous users. We formulate the market competition as a two-stage game: in Stage I, the MNOs simultaneously decide their pricing strategies of their chosen data mechanisms; In Stage II, users make their subscription decisions among the two MNOs. We characterize the sub-game perfect equilibrium (SPE) of the two-stage game through backward induction. Comparing with a monopoly market where a better time flexibility always improves the MNO's profit, our analysis reveals a rather complicated story in the duopoly market: (i) with a mild competition, the stronger MNO will increase both MNOs' profits by adopting a data plan with a better time flexibility, while the weaker MNO will decrease both MNOs' profits by adopting a data plan with a better time flexibility; (ii) with a fierce competition, any MNO will increase its profit and decrease the competitor's profit by adopting a data plan with a better time flexibility.