A Pricing Model for Cloud Computing Service

Abstract

The major purpose of this study is to examine the cloud services pricing schemes and how they can improve previous pricing models by expanding the consumer set with time inconsistent behavior. The industry of cloud computing services is in its infancy, and firms employ pricing models based on conventional information goods. We offer a new approach to cloud services pricing considering the consumer discounting behavior. First, we propose a baseline model based on a profit maximizing duopolistic market serving to both rational and time inconsistent users. Our results reveal that the firms can profit from impatient users. In addition, we extend the baseline model with the effect of delayed network externalities because, by nature, information goods exhibit this property strongly. For the latter case, we show that the effect of network externalities reduces the impact of low switching costs and the monopolist benefits from time-inconsistent behavior. This study contributes to the theories of pricing information goods, and practitioners who make pricing decisions for cloud computing services.