Provider Competition in Infrastructure-as-a-Service

This paper explores how cloud provider competition influences instance pricing in an IaaS (Infrastructure-as-a-Service) market. When reserved instance pricing includes an on-demand price component in addition to a reservation fee (two-part tariffs), different providers might offer different price combinations, where the client´s choice depends on its load profile. We investigate a duopoly of providers and analyze stable market prices in two-part tariffs. Further, we study offers that allow a specified amount of included usage (three-part tariffs). Neither two-part nor three-part tariffs produce an equilibrium market outcome other than a service pricing that equals production cost, i.e., complex price structures do not significantly affect the results from ordinary Bertrand competition.