First-Price Auctions with Reimbursement in NSP Alliances with Asymmetric Buyers

Abstract

The emergence of Network Service Provider Alliances (NSPs) to provide end-to-end, quality-assured services, promises new business and service opportunities for NSPs and customers respectively. This new marketplace requires a suitable pricing mechanism that allows price fixation, control access and customer trust in the new -and thus without reputation-seller. To work in this scenario, we propose a pricing scheme based on First-price auctions and where a pre-announced percentage of the price paid for the service is reimbursed if the quality is not satisfied. An optimal percentage of reimbursement can be analytically computed in simplified scenarios, where all buyers are equally modelled [1]. In more realistic scenarios, customers and services are asymmetric, e.g. buyers value the service on sale in a different way, and no analytical results can be derived. As a remedy, we propose a simulative approach in order to approximate buyers' willingness to pay, and subsequently compute the optimal percentage of reimbursement. We apply our simulator to different case studies, finding in all of them that the optimal percentage of reimbursement is 100% and this value prevents problems such as the market for lemons.