A Model for Joint Engineering-Economic Analysis of Cellular Systems

Economic models of network effects, which describe how the market for a good or service depends on the number of units sold, have been used for decades in the economics literature. However, it is not clear how these models may be applied to the cellular network service. The relationship between the “value” of cellular service and the “size” of the cellular network (including the base station density, user density, and bandwidth), is not straightforward. Furthermore, this relationship is dependent on physical and technical characteristics of the network. This letter develops a joint engineering-economic model for network effects in cellular networks. The model captures the relationship between the network size and its technical characteristics, and the behavior of the market for that service. It is shown how the developed model can be used to find equilibrium size of the market for different networks. For example, this model identifies and formalizes fundamental differences between the markets for millimeter wave and microwave networks, that are not revealed by standard engineering or economic analyses.