Cloud Pricing: The Spot Market Strikes Back

Management Science, 2021

18 Pages Posted: 11 May 2019 Last revised: 1 Apr 2021

See all articles by Ludwig Dierks

Ludwig Dierks

University of Zurich - Department of Informatics

Sven Seuken

University of Zurich - Department of Informatics

Date Written: February 25, 2021

Abstract

Cloud computing providers must constantly hold many idle compute instances available (e.g., for maintenance or for users with long-term contracts). A natural idea, which should intuitively increase the provider's profit, is to sell these idle instances on a secondary market, for example, via a preemptible spot market. However, this ignores possible "market cannibalization" effects that may occur in equilibrium as well as the additional costs the provider experiences due to preemptions. To study the viability of offering a spot market, we model the provider's profit optimization problem by combining queuing theory and game theory to analyze the equilibria of the resulting queuing system. Our main result is an easy-to-check condition under which a provider can simultaneously achieve a profit increase and create a Pareto improvement for the users by offering a spot market (using idle resources) alongside a fixed-price market. Finally, we illustrate our results numerically to demonstrate the effects that the provider's costs and her strategy have on her profit.

Keywords: Cloud Computing, Queueing Theory, Game Theory, Equilibrium Analysis, Profit Optimization

JEL Classification: D47, L11

Suggested Citation

Dierks, Ludwig and Seuken, Sven, Cloud Pricing: The Spot Market Strikes Back (February 25, 2021). Management Science, 2021, Available at SSRN: https://ssrn.com/abstract=3383420 or http://dx.doi.org/10.2139/ssrn.3383420

Ludwig Dierks (Contact Author)

University of Zurich - Department of Informatics ( email )

Binzmühlestrasse 14
Zurich, CH-8050
Switzerland

Sven Seuken

University of Zurich - Department of Informatics ( email )

Binzmühlestrasse 14
Zürich, CH-8050
Switzerland

HOME PAGE: http://www.ifi.uzh.ch/en/ce/people/seuken.html

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