Sylwester Laskowski

1
Sylwester Laskowski

• Adviser
• prof. Andrzej P. Wierzbicki

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Subject of presentation

• Price decision and negotiation support
• on competitive
• telecommunication services market.

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Monopoly on the telecom market

• Goal maximize Profit - Z
• D Demand
• U Number of subscribers (market share)
• C Cost
• MR MC
• PoM Profit of Monopoly
• LOC Loss Opportunity Cost

Price
A
PM
LAC, LMC
C
PC
B
DD
MR
QM
QC
Quantity
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Problems of natural monopoly

• Goal maximize Revenue - R
• D Demand
• U Number of subscribers (market share)
• C Cost
• MR MC
• PoM Profit of Monopoly
• LOC Loss Opportunity Cost

Price
A
PM
B
C
E
LAC
D
F
PC
LMC
G
DD
MR
QM
QC
Quantity
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Problems for entry new operators

• New operator has to interconnect his network to
  incumbent operators network
• Incumbent operator can subsidize one service by
  profits from another services
• New operator has no experience

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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The kinds of interconnection
POI

• Local
• Single tandem
• Double tandem
• Local Loop
• Unbundling

TE
TE
Double
Single
Local
LE
LE
LLU
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The kinds of prices

• Price for internal calls PAAA
• Termination fee PABA (respectively to the lavel
  of interconnection)
• Orygination fee PAAB
• Fixed price for subscription PAF

POI
PAAB
PBAB
B
A
PABA
PBBA
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Fields of competition

• Local market
• Tandem market
• International market

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Pro-competitive instruments of regulation

• Hard
• Proposition of prices
• Soft
• Reciprocity
• Imputation
• Unbundling
• Cost orientation

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Cost based aproach to setting prices

• Long Run Incremental Cost

Cost
LRIC
Quantity
Additional quantity needed for interconnection
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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Modeling of

• Function of demand - DAiputn
• Distrubution of trafic - ?AiBj
• Number of subscribers - UAiputn

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Local operators (A) point of view

• He sets PAAA, PAAB, PAAX
• He negotiates
• with other local operator PABA, PBAB
• with tandem operator PAXA, PXS , PXD

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Tandem operators (X) point of view

• He negotiates
• with local operator PAXA, PXS, PXD
• with other tandem operator (Y) PXS, PXD, PYS, PYD

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General goals of operators activity

• Maximize
• Profits Z
• Market share (number of subscribers U)
• Demand D (specialization, subscribers are used
  to subscribeing services)
• Multi-Objective Optimization problem

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Two kinds of market games

• Game for profit game against nature
• Known own outcomes matrix
• (Profit Revenue - Cost)
• Unknown rivals outcomes matrix (unknown rivals
  structure of costs)
• Game for market share/ demand N-person game
• Known own and rivals outcomes matrix

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Game for profit game against nature

• Iterative setting prices
• The best order for A
• B sets prices
• Negotiations on termination fees
• A sets prices (chooseing the best strategy)
• Simultanous setting prices
• The first case
• A, B set their prices
• Negotiations on termination fees
• The second case
• Negotiations on termination fees
• A, B set their prices

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Game for profit game against nature

• Criteria of chooseing strategy
• well known
• some new
• The most promising operator concept
• If there is more then 2 competitive operators,
  the question is knowledge of which operators
  price decision is in specific sense - the most
  valuable

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The most promising operator concept

• Denote
• SQAX status quo,
• Actually computed outcome for operator A with
  useing X criterion of chooseing strategy.
• KDOX Known Decision of Operator O,
• The outcome computed for operator A with useing
  X criterion of chooseing strategy, when decision
  of operator O is known.
• VIOX Value of Information,
• The value of information concerning O operators
  decision computed for operator A with useing X
  criterion of chooseing strategy.

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The most promising operator concept

• The value of information concerning operator Os
  price decision
• VIOX KDOX - SQAX
• Definition.
• The most promising operator it is an operator
  for which VIOX has the highest value.

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Game for market share/ demand N- person game

• Looking for existence of an advantage of the
  first/the last mover

an advantage of the first mover
an advantage of the second mover
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Game for market share/ demand N- person game

• Iterative setting prices
• The best order for A exists an advantage of the
  first mover
• A sets prices
• B sets prices
• Negotiations on termination fees
• The best order for A exists an advantage of
  the last mover
• B sets prices
• Negotiations on termination fees
• A sets prices

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Game for market share/ demand N- person game

• Simultanous setting prices
• The first case
• A, B set their prices
• Negotiations on termination fees
• The second case
• Negotiations on termination fees
• A, B set their prices

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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Makeing the cake bigger the case of LO - TO

• LOs goal maximize market share U
• TOs goal maximize demand D
• For increasing U operator A can decrease PAAA ,
  PAAX or Pf
• Decreasing of PAAX increases D

POI
PAAX
PXAX
X
A
PAXA
PXXA
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Makeing the cake bigger the case of LO - LO

• A low cost operator with many subscribers
• B high cost operator with little but important
  subscribers
• If a big fraction of As traffic is directed
  to Bs network, it is profitable for A to
  subsidize D for terminating calls in As network.
  
• PABA may be
• even negative.

POI
PAAB
PBAB
B
A
PABA
PBBA
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Agenda

• Liberalisation of the telecom services market
• The kinds of interconnection/ prices
• Regulated market
• Cost /demand-cost based approach to setting
  prices
• Model of demand
• Local/tandem operators point of view
• General goals of operators activity
• Two kinds of market games
• Makeing the cake bigger multiobjective
  analysis
• Conclusions

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Conclusions

• Cost based aproach is not enough for efective
  competition on telecommunication services market
• Elements of Game Theory, and Multi-Objective
  analisis based on good models of demand and costs
  are very useful for efective determination of
  prices and for supporting negotiations.

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Thank you for your attention!

• Questions ...?