Web service and dynamic pricing competition

Abstract

Web services have become quite popular over the last few years as they allow easier development and integration of business applications. In this paper, we consider a web service pricing problem where two providers compete through dynamic pricing. Each provider offers access to a web service with different quality classes where users may buy their required web service through a reservation system. They would like to adjust the prices of their web services over a pre-specified time horizon to manage demand and to maximize profit. Users have the right with no obligation to cancel their services as long as they pay a penalty. We consider a dynamic setting where the web service classes share a capacity. We first develop a time continuous model for competitive pricing of a web service and then we provide some insights about the equilibrium condition of the problem using open-loop differential game and propose an algorithm to obtain the optimal pricing policy for providers. Moreover, we conduct numerical analyses to examine the impacts of some parameters on control and state variables.

A robust optimization formulation for dynamic pricing of a web service with limited total shared capacity

“…Optimal control theory is built as a branch of mathematics to provide optimal methods for controlling a dynamic system. [17][18][19][20][21][22] Most of the researches in optimal control devoted to obtaining the optimum solution for linear continuous-time models. 12,[21][22][23][24][25][26] In this article, since the problem has a nonlinear nature, the nonlinear optimal control model is used to analysis of the explicit model.…”

“…They first considered the model in which the providers detect the prices and levels of service at the same time, and then expanded it to a sequential move case. Furthermore, Safari and Babakhani 20 analyzed a web service pricing problem where two providers compete within dynamic pricing. Each provider allows access to a web service with different quality classes where users may purchase their needed web service by a reservation system.…”

“…Optimal control theory is built as a branch of mathematics to provide optimal methods for controlling a dynamic system 17‐22 . Most of the researches in optimal control devoted to obtaining the optimum solution for linear continuous‐time models 12,21‐26 .…”