Hotspot services in the open spectrum : implications of market organization for coverage and welfare

We consider three ways a market for wireless communication can be organized in the open spectrum. First, a network of hotspots might be owned by a telecommunications company (‘telco’). Second, a decentral- ized network (‘free radio’) might arise in which users connect to indi- vidually owned hotspots. Third, a hotspot aggregator might intermediate between users and individual hotspot providers. The number of hotspots can be larger for the telco market type than for free radio if users care enough about coverage. If the sensitivity of technology to spectrum con- gestion is high, free radio is to be preferred to a telco market. The number of hotspots for a market with a hotspot aggregator is smaller than for free radio because of ‘double marginalization’. None of the three market types is socially optimal because of monopolistic behavior and because of an externality induced by a preference for coverage.