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Duopoly price competition of WLAN service providers in presence of heterogeneous user demand

In the presence of several wireless local area network (WLAN) service providers, the users have to make a choice. The price charged and the congestion experienced by the users play an important role in making this choice. In this paper, we analyze the duopoly price competition between two WLAN service providers in the presence of four types of users. We prove that the distribution of heterogeneous user demand is governed by the Wardrop equilibrium. We also show the existence of the Nash equilibrium between competing WLAN service providers. It is further shown through analysis that the social welfare in Nash equilibrium is close to its maximal value. We find that compared to a strictly regulated monopoly, an unregulated WLAN duopoly market results in significant transfer of the surplus from service providers to users with negligible losses in efficiency.