On Pricing of Spectrum in Secondary Markets

Abstract

Optimal price of spectrum in secondary markets is studied. We consider a primary license holder who aims to lease the right to provide service in a given subset of its coverage area. Such a transaction has two contrasting economic implications for the seller: on the one hand the seller obtains a revenue due to the exercised price of the region. On the other hand, the seller incurs a cost due to (i) reduced spatial coverage of its network and (ii) possible interference from the leased region into the retained portion of its network. We formulate an optimization problem with the objective of profit maximization, and characterize its solutions based on a reduced load approximation. The form of optimal price suggests charging each admitted call in proportion to the attendant revenue loss due to the generated interference.