Bertrand Oligopoly Competition in Composite Web Service Network

Bertrand Oligopoly Competition in Composite Web Service Network

Yu Wang (School of Management, University of Science and Technology of China, Hefei, Anhui, China), Xinle Liang (School of Computer Science and Technology, University of Science and Technology of China, Hefei, Anhui, China), Rui Xu (School of Business, Hohai University, Nanjing, China), Chuang Liu (School of Management, University of Science and Technology of China, Hefei, Anhui, China) and Huaping Chen (School of Management, University of Science and Technology of China, Hefei, Anhui, China)
Copyright: © 2018 |Pages: 22
DOI: 10.4018/IJWSR.2018040104

Abstract

Because of its heterogeneous nature, a web service can be composed of multiple composite web services. To improve profitability in the software-component economy, software as a service (SaaS) service providers compete more at the composite-service level than at the single-service level. Moreover, because of the collaborative environment, composite web service networks determine both the applicability of the web service and its expected economic behavior. Based on the traditional linear demand model, this article presents a congestion-aware demand model that makes several assumptions regarding the SaaS service marketplace. Then, it formulates the SaaS service providers' pricing behaviors as a network Bertrand oligopoly competition. Key game-theoretic analysis includes the existence and uniqueness of the pure strategy Nash equilibrium. Moreover, this article provides one sufficient condition, where if all SaaS service providers follow the best response strategy, the strategy profile converges to the unique pure strategy Nash equilibrium.
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1. Introduction

Web services are considered to be self-contained, self-describing, modular applications that can be published, located, and invoked across the Internet. Web services have become an emerging and promising technology in the design and building of complex inter-enterprise business applications using single web-based software components. In particular, if no single web service can satisfy the functionality required by the user, it should be possible to combine existing component services in order to fulfill the request. Many studies have done on web service composition (WSC), which significantly augment the complexity with which we may formulate the economic behaviors of participants in the cloud service marketplace.

Figure 1.

Service-oriented architecture and cloud service architecture

IJWSR.2018040104.f01

Figure 1 presents a brief architecture of the participants in the cloud service marketplace, which can actually be viewed as a combination of a service-oriented architecture (SOA) and a cloud service architecture (Mell & Grance, 2009).

SOA follows the “find, bind and invoke” paradigm, where a service consumer performs dynamic service location by querying the service registry for a service that matches its criteria. If the service exists, the registry provides the consumer with the interface contract and the endpoint address for the service. The cloud service architecture (Xia et al., 2014) includes the following three elements. Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).

This work investigates price competition among SaaS service providers in which cloud users can access the applications run on a cloud infrastructure, with the possible exception of limited user-specific application configuration settings that are supported by the cloud providers.

In the architecture in Figure 1, SaaS service providers can ensure profitability by providing services to service consumers, while relevantly paying IaaS/PaaS service providers for technical support (Zheng et al., 2017).

1.1. Composite Web Service Network Price Competition

The main concerns in the WSC community involve the development of an executable and reliable composite web service, while satisfying the quality of service (QoS) or transactional constraints from web service consumers. Owing to its heterogeneous nature, a web service can be composed of different web software applications, which together form a composite web service network (CWSN).

In the cloud service marketplace, optimal price decisions should be madeto maximize the profit obtained from the cloud marketplace.EachSaaS provider has to balance the expenditure to IaaS/PaaS providers and the income from service consumers. These selfish economic behaviors naturally result in a price competition scenario.

In CWSN, homogeneous products can be recognized as different composite web services. As traditional products, the rise in the price of composite web services can cause service consumers to cancel transactions or purchase substitute composite web services. These negative demand-price relations indicate that there is a Bertrand oligopoly competition in the CWSN network environment.

In economics, the Bertrand competition model (Osborne, 2003) is an extensively used model that formulates the price competition between oligopoly firms under perfect competition, and they compete in terms of price and choose their respective prices simultaneously.

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