Abstract
The Web services technology allows for the distribution and integration of loosely coupled software components over the Internet. This paper studies the optimal pricing and location strategy of a Web service intermediary (WSI), which offers a time-sensitive composite Web service. We first derive the optimal solution in a linear city model and then extend the analyses to the more general unit circle model. Our analyses show that that the optimal strategy is determined by delay cost, integration cost, and prices of the constituent Web services. We find that the WSI is optimally located between the Web service providers and charges a penetration price if the delay cost is low. In addition, there could be multiple optimal locations for the WSI if the Web service providers are far away from each other.
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