Determining strategy of pricing for a web service with different QoS levels and reservation level constraint

Abstract This paper develops a continuous time optimal control model for identifying price strategies for a web service in order to maximize provider’s profit. In real world, web service providers normally change their prices dynamically and provide a web service with different levels of quality of service (QoS) (i.e. web service classes) to satisfy their customers with different requirements. Furthermore, the providers may sell the web service prior to consumption period through a reservation system and customers have the right to cancel their orders. The primary assumption of this paper is that the maximum reservation level for each class of the web service is specified in advance. In addition, the total capacity of the web service is shared among all the service classes. In this paper a novel model is presented in which the demand for each service class is a linear function of price, the unit web service cost and capacity are constant for each class of web service, the total allocated capacity, maximum reservation level for each service class and all the other coefficients (such as maximal demand, price sensitivity, etc.) are time dependent. An algorithm is proposed, which calculates the optimal pricing strategy as a function of time. Additionally, numerical analyses are utilized to evaluate the effect of some important parameters on the control and state variables, total revenue and objective function. Furthermore, the proposed algorithm is compared with some existing approaches.