Rewarding Contribution to Service Network Formation

Complete industries shift from vertical integration to horizontal specialization. One of the pioneers for this trend is the software industry, increasingly turning their offerings into services. The latter are provided by a multitude of specialized vendors that leverage their core competencies in service value networks. These networks, offering joint complex services to customers, are still in their infancy. Both academics and practitioners still lack approaches to formalize and economically analyze such organizational forms. We introduce a formal model of service value networks and apply it to introduce a mechanism implementation to allocate and price complex services in service value networks. The mechanism includes a component that rewards vendors for their contribution to the overall network structure – the power ratio. Based on this power ratio, a fair distribution of the generated value with the network can be reached besides traditional objectives of mechanism design. Consequently, this distribution is meant to reward vendors also for their mere presence in the network, not just for the inclusion in a particular service rendered. Our mechanism is tailored to deal with coordination aspects in service ecosystems in which participants are both self-interested and also dependent on the success of the whole system.