Modeling the Efficiency of Spectrum Designated to License Use and Unlicensed Operations

OSP Working Paper 42 (February 2008). Obtaining the economically efficient use of spectrum requires that the price signals that guide its allocation and use be competitive. One approach involves establishing a nonexclusive licensing regime that provides for open and free access to spectrum. However, myopic, self-interested behavior on the part of users can give rise to excessive wireless
spectrum congestion.

 

This paper examines the Nash Equilibria that exist in an environment that exhibits characteristics present in the naturally occurring environment.  The various Nash Equilibria generate total surplus levels that are far below the levels achieved under the efficient allocation of spectrum.

 

This paper also examines the performance properties of congestion etiquettes that utilize various types of user information to address the congestion problem. Termed “market-informed” etiquettes, Nash Equilibrium theory predicts that these etiquettes are superior to the currently and widely used congestion etiquette, despite the fact that such etiquettes introduce a surprising strategic effect that may substantially reduce total welfare.