Networked Mechanism Design Incentive Engineering in Service Value Networks as Exemplified by the Co-Opetition Mechanism

The software industry is currently experiencing a fundamental transition from selling proprietary applications towards the provision of networked services – i.e. modularized and specialized services composed in a plug-and-play fashion in networked service systems. In such service systems, participants’ interests need to be aligned with the network’s global objectives in an incentive engineering approach. In more detail, this paper seeks to tackle the challenge of coordinating self-interested service providers in a co-opetitive environment by designing adequate mechanisms. However, “classic” mechanism design focuses on design goals such as efficiency, incentive compatibility and budget balance whose mere consideration does not always hit the target in service networks. Incorporating the requirements that are imposed by newly arising networked scenarios where a set of agents must cooperate to create value resulting in a complex service, we propose a novel variation of mechanism design: networked mechanism design. Following this approach, we present the co-opetition mechanism as a possible instantiation of networked mechanism design which pursues network-related goals such as network growth, a high degree of interconnectedness, readiness to deliver, and fairness.