National Broadband Network & Economic Strategy for Business - IT Assignment Help

Assignment Task

Task
This exercise studies the price competition between two major telcos in Australia: Telstra and
Optus, and their relationship with NBN (National Broadband Network). NBN is a publicly-owned,
open-access data network wholesaler. Telstra and Optus are retail service providers (RSPs) who
contract with NBN to access the data network and sell Öxed internet access to end users. Currently
the most popular home internet plan in Australia is the NBN 50 plan, which provides a theoretical
download speed of 50 Mbps. To simplify our analysis, assume NBN 50 is the only plan o§ered by
Telstra and Optus, and they are the only telcos in Australia. Suppose on average NBN charges PN
(wholesale price) per customer access to NBN 50 per month to RSPs. Telstraís monthly total cost
function is
T CT (QT ) = (PN + 5)QT + 12 million;
where QT is the number of subscribers to Telstraís NBN 50 plan. Similarly, Optusís monthly toal
cost function is
T CO(QO) = (PN + 5)QO + 12 million;
where QO is the number of subscribers to Optusís NBN 50 plan. On the other hand, suppose NBNís
monthly total cost function is
T CN (QN ) = 17QN + 85 million;
where QN = QT + QO is the total number of NBN 50 subscribers.
Let PT denote Telstraís monthly subscription fee and PO Optusís monthly subscription fee. Within
a reasonable price range, QT and QO are determined by the following equations:
QT (PT ; PO) = 4 million
4 million
25
PT +
(a) (2 marks) Write down the proÖt functions for Telstra and Optus.
(b) (4 marks) Suppose NBN sets the access fee at PN = $45: Assume that each telco only
considers setting the monthly subscription fee at one of the following three values: $60, $65,
and $70. Construct a 33 payo§ matrix for the pricing game between Telstra and Optus and
Önd the Nash equilibrium of the game. Calculate each telcoís proÖts, number of subscribers,
and the HerÖndahl Index (based on the number of subscribers) in equilibrium

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