6th International Conference on Performance Evaluation Methodologies and Tools

Research Article

New Insights from a Bounded Rationality Analysis for Strategic Price-QoS War

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  • @INPROCEEDINGS{10.4108/valuetools.2012.250410,
        author={Mohamed Baslam and Rachid El-Azouzi and Essaid Sabir and El-Houssine Bouyakhf},
        title={New Insights from a Bounded Rationality Analysis for Strategic Price-QoS War},
        proceedings={6th International Conference on Performance Evaluation Methodologies and Tools},
        publisher={IEEE},
        proceedings_a={VALUETOOLS},
        year={2012},
        month={11},
        keywords={pricing qos nash equilibrium bounded rationality delay},
        doi={10.4108/valuetools.2012.250410}
    }
    
  • Mohamed Baslam
    Rachid El-Azouzi
    Essaid Sabir
    El-Houssine Bouyakhf
    Year: 2012
    New Insights from a Bounded Rationality Analysis for Strategic Price-QoS War
    VALUETOOLS
    ICST
    DOI: 10.4108/valuetools.2012.250410
Mohamed Baslam1, Rachid El-Azouzi2, Essaid Sabir3,*, El-Houssine Bouyakhf4
  • 1: Ecole Normale Supérieure de Lyon
  • 2: University of Avignon
  • 3: Hassan II university
  • 4: University of Mohammed V
*Contact email: essaid.sabir@univ-avignon.fr

Abstract

We present a game theoretic framework for the dynamical behaviors of a duopoly game in telecommunications service providers' context. Competition between two Service Providers (SPs) is assumed to take place in terms of their pricing decisions and the Quality of Service (QoS) they offer. According to the SPs' rationality level, we consider two schemes: 1) Both SPs are rational, and 2) One SP is rational and the second SP is boundedly rational. We describe the competitive interaction and analyze the resulting equilibria. Later, we compute explicitly the steady states of the dynamical system induced by bounded rationality, and establish a necessary and sufficient condition for stability of its Nash equilibria (NEs). We prove that there exists exactly one NE which is fair whereas remaining equilibria are unfair. A special feature is that the stability condition of the Nash equilibrium coincides with the instability condition of the boundary equilibria. Thus the system would never be absorbed by any of the unfair equilibria which solves the equilibrium selection issue ! Moreover, we show that considering the delay case (i.e., assuming a market with memory) increases the stability of the system. Here, the size of the memory could be considered for multi-level rationality, which means that bounded rationality tends to rationality as the memory size increases. We finally show that boundedly rational SPs with delay have a higher chance of reaching the fair Nash equilibrium.