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Game Theory and Cell Phone Plans

Wireless carriers are always launching “revolutionary” cell phone plans. You might remember back in 2013, T-Mobile changed the market with their “Jump” plan, a.k.a. “Just Upgrade My Phone”. Soon to follow, AT&T announced their “Next” program, which was basically the same plan, with slightly different terms and conditions. In response, Verizon introduced their early Edge program, which not surprisingly, allows customers to upgrade their phone before the standard 2-year wait. Finally, Sprint created their own “One Up” plan (which was abandoned a few months later).

So why did all of these carriers release very similar plans in the span of a few months? It can be explained with game theory and an understanding Nash equilibrium.

Consider the phone carriers “T-Mobile” and “Other Carrier”, which represents all other major wireless carriers. Here in this matrix, we can see that the Nash Equilibrium is in fact to both introduce an early upgrade plan.

Cell phone carriers would all be better off in an ideal world where none of them introduce early upgrade plans, which cost a significant amount to the company. However, if other carriers anticipate that T-Mobile is going to come out with an early upgrade program, then it is in their best interest to also come out with an early upgrade program. After all, no cell phone carrier wants to be left behind by the competition.

For example:

Screen Shot 2014-09-27 at 6.15.44 PM

Essentially, these carriers are forced to keep up with the changing market and demands of the customer. All carriers introduce their own version of T-Mobile’s Jump, and therefore hurt the entire industry. Even if implementing an early upgrade plan is not ideal for these companies, it’s just the Nash equilibrium.

Sources: http://www.techradar.com/us/news/phone-and-communications/mobile-phones/t-mobile-early-upgrades-vs-at-t-verizon-and-sprint-upgrades-1165029

https://gigaom.com/2014/01/13/sprint-ends-one-up-program-after-just-four-months/

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