Optimal contract design for cloud computing service with resource service guarantee

• Published in: The Journal of the Operational Research Society Vol. 68; no. 9; pp. 1030 - 1044
• Main Authors: Kuo, Chia-Wei, Huang, Kwei-Long, Yang, Chao-Lung
• Format: Journal Article
• Language: English
• Published: London Taylor & Francis 01.09.2017; Taylor & Francis, Ltd; Palgrave Macmillan UK; Taylor & Francis Ltd
• Subjects: Business and Management; Cloud computing; cloud computing service; contract design; Contracts; Customer services; Customers; Decisions; Economic models; Management; Operations Research/Decision Theory; Pricing; Redundancy; Resource allocation; service guarantee; SLA; contract design; SLA; service guarantee; cloud computing service; pricing
• ISSN: 0160-5682; 1476-9360
• DOI: 10.1057/s41274-016-0141-z

The optimal contract design for cloud computing service with resource guarantee under the consideration of resource redundancy and network externality is studied in this research. A model in which a service provider determines joint pricing and resource allocation decisions is constructed by proposing two types of contracts with different service-level agreements (SLAs). The SLA of each contract describes the price and associated penalty if the provider cannot provide the resource requested by the customers. Optimal pricing and resource allocation decisions as well as the equilibrium contracts of the service provider are analyzed based on the dynamics of the model characteristics. We found that optimal contract design is sensitive to both service levels and customers’ beliefs of compensation ratio when the requested resource is unfulfilled. Furthermore, service providers should evaluate the trade-off between benefit of price discrimination and effect of network externality when determining the optimal contract design.