Investment in an Unlicensed Spectrum Market with Contracts

Unlicensed access to spectrum has the potential to increase competition in spectrum access and encourage innovations by lowering barriers to entry. However, early provider offering service in such a band might use customer contracts which impose a penalty on customers for switching to other providers as a way of creating new entry barriers. Given such contracts, entrant providers must weigh the likelihood of customers switching to them when deciding how much to invest in the development of new technology. Furthermore, there may be information asymmetries between an entrant and an existing provider with regard to the potential efficiency of any new technology. We use a game theoretic model to study such issues and characterize the resulting impact of contracts on the overall economic welfare.