A Subsidization Scheme for Maximizing Social Welfare in Mobile Communications Markets

Abstract

In contemporary mobile communications markets, various agents or players interact to pursue welfare. Regulatory policies enacted by governments in certain markets aim to maximize social welfare. However, some countries, both least developed and developing, often adopt successful models from developed nations without local market validation. Therefore, network economics serves as a pertinent framework for analyzing such policies. This paper introduces a novel scheme based on constrained optimization problems, where the constraints represent multilevel economic game equilibria within a system model involving three agents: the central planner, the mobile network operator, and the mobile data users. These agents strategically optimize their payoff functions by considering benefit factors and decision variables such as the subsidization factor, pricing, and data consumption. To this end, a three-stage dynamic game is proposed to model the players’ interactions, employing the backward induction method to ascertain the subgame perfect equilibrium from the Nash equilibrium. A case study is presented, demonstrating a 31.16% increase in social welfare between scenarios involving no adoption of the subsidization factor and its adoption at the optimal value when the central planner enacts it to other players in the game, even if they do not necessarily attain maximum payoff values. In countries aligning with this proposed model, social welfare is maximized through a subsidization scheme.