Bertrand Oligopoly Competition in Composite Web Service Network

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.