Competitive pricing of complementary telecommunication services with subscriber churn in a duopoly

Today, due to the widespread use of smartphones, numerous applications, and their advantages in a number of daily tasks, subscribers desire a high-speed connection more than ever before. There may be some subscribers who choose to subscribe to more than one telecommunications service provider to satisfy their needs. Operators in such a competitive environment try to take advantage of this diversity of consumer needs and preferences in order to provide different services and pricing options. In this paper, a duopoly market consisting of two mobile operators is examined from a game theory perspective. By offering and pricing various bundled call and data services, as complementary services, operators try to maximize their profits. Subscribers choose the bundle with the highest surplus that best suits their telecom needs. Subscribers from various market segments may churn if they discover that other operators offer service plans with higher surpluses. The problem is formulated as a Generalized Nash Equilibrium Problem (GNEP) where operators price service plans simultaneously while they are coupled through shared constraints. After reformulating the mathematical model, a heuristic algorithm is proposed to find an equilibrium solution. In addition to extensive numerical experiments, a thorough sensitivity analysis is conducted. Finally, this study provides some managerial insights that may assist telecom operators in making optimal decisions regarding the pricing and design of their bundles in a competitive environment.