Joint Pricing and Capacity Planning in the IaaS Cloud Market

In the cloud context, pricing and capacity planning are two important factors to the profit of the infrastructure-as-a-service (IaaS) providers. This paper investigates the problem of joint pricing and capacity planning in the IaaS provider market with a set of software-as-a-service (SaaS) providers, where each SaaS provider leases the virtual machines (VMs) from the IaaS providers to provide cloud-based application services to its end-users. We study two market models, one with a monopoly IaaS provider market, the other with multiple-IaaS-provider market. For the monopoly IaaS provider market, we first study the SaaS providers' optimal decisions in terms of the amount of end-user requests to admit and the number of VMs to lease, given the resource price charged by the IaaS provider. Based on the best responses of the SaaS providers, we then derive the optimal solution to the problem of joint pricing and capacity planning to maximize the IaaS provider's profit. Next, for the market with multiple IaaS providers, we formulate the pricing and capacity planning competition among the IaaS providers as a three-stage Stackelberg game. We explore the existence and uniqueness of Nash equilibrium, and derive the conditions under which there exists a unique Nash equilibrium. Finally, we develop an iterative algorithm to achieve the Nash equilibrium.