Sonja Brangewitz

Economic Aspects of Service Composition: Price Negotiations and Quality Investments

We analyse the economic interaction on the market for composed services. Typically, as providers of composed services, intermediaries interact on the sales side with users and on the procurement side with providers of single services. Thus, in how far a user request can be met often crucially depends on the prices and qualities of the different single services used in the composition. We study an intermediary who purchases two complementary single services and combines them. The prices paid to the service providers are determined by simultaneous multilateral Nash bargaining between the intermediary and the respective service provider. By using a function with constant elasticity of substitution (CES) to determine the quality of the composed service, we allow for complementary as well as substitutable degrees of the providers’ service qualities. We investigate quality investments of service providers and the corresponding evolution of the single service quality within a differential game framework.

Contract Design for Composed Services in a Cloud Computing Environment

In this paper, we study markets in which sellers and buyers interact with each other via an intermediary. Our motivating example is a market with a cloud infrastructure where single services are flexibly combined to composed services. We address the contract design problem of an intermediary to purchase complementary single services. By using a non-cooperative game-theoretic model, we analyze the incentives for high- and low-quality composed services to be an equilibrium outcome of the market. It turns out that equilibria with low quality can be obtained in the short run and in the long run, whereas those with high quality can only be achieved in the long run. In our analysis we explicitly determine the according discount factors needed in an infinitely repeated game. Furthermore, we derive optimal contracts for the supply of high- and low-quality composed services.

Asymmetric dominance effect with multiple decoys for low- and high-variance lotteries

The asymmetric dominance effect refers to the phenomenon according to which the choice probability of an alternative increases when an inferior alternative - the decoy - is included into the choice set. The objective of this experimental study is twofold. First, we investigate the asymmetric dominance effect on two-outcome lotteries with almost equal expected values. We find that the impact of a decoy on low-variance lotteries (LVLs) is much higher than on high-variance lotteries (HVLs). Second, we examine the asymmetric dominance effect in the presence of two decoys. While the asymmetric dominance effect persists when the choice set includes two decoys, the effect is not always further enhanced compared to the setting with one decoy and again much stronger for LVLs than for HVLs. Controlling for subjects’ degrees of risk aversion, we find support for consistency between individual risk preferences and choice behavior among the lotteries. However, we observe decoy effects of equal strength irrespective of the subjects’ degree of risk aversion. Thus, our analysis indicates that to a substantial extent the presence of decoys subtly makes decision-makers choose against their risk preferences by favoring lotteries that entail risks contrary to their elicited individual risk-taking profile.

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 clients 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.