Dynamic Pricing Strategy of Provider with Different QoS Levels in Web Service

Abstract

In order to improve the service provider profit, the pricing strategies in service network have been studied, but primarily in static pricing setting without considering different quality of service (QoS) levels. However, in real situation, providers usually dynamically adjust their prices and offer multiple class services to meet different customers. Moreover, because service provider will satisfy demands of customers on a specific future date, customers may cancel order. In this paper, we establish a new dynamic pricing model to consider order cancellation ration and different QoS levels for maximizing provider revenue. The analytical results from this new model reveal that the optimal capacity and prices are derived via closed-form solutions. Finally, a numerical example is presented to illustrate that the proposed method is effective for determining the optimal capacity and prices. In addition, sensitivity analysis of the optimal capacity and profit with respect to some important parameters are also conducted to illustrate the optimal decision characteristics.