Cloud Pricing: The Spot Market Strikes Back

Ludwig Dierks () and Sven Seuken ()
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Ludwig Dierks: Department of Informatics, University of Zurich, CH-8050 Zurich, Switzerland
Sven Seuken: Department of Informatics, University of Zurich, CH-8050 Zurich, Switzerland

Management Science, 2022, vol. 68, issue 1, 105-122

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; queuing theory; game theory; profit optimization; market design (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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