A Network Economic Game Theory Model of a Service-Oriented Internet with Choices and Quality Competition

Abstract

This paper develops a new dynamic network economic model of Cournot-Nash competition for a service-oriented Internet in the case of service differentiation and quality competition. Each service provider seeks to maximize its own profit by determining its service volumes and service quality. We utilize variational inequality theory for the formulation of the governing Nash equilibrium as well as for the computational approach. We then construct the projected dynamical systems model, which provides a continuous-time evolution of the service providers service volumes and service quality levels, and whose set of stationary points coincides with the set of solutions to the variational inequality problem. We recall stability analysis results using a monotonicity approach and construct a discrete-time version of the continuous-time adjustment process, which yields an algorithm, with closed form expressions at each iteration. The algorithm is then utilized to compute the solutions to several numerical examples. A sensitivity analysis is also conducted.