Pricing Resources on Demand

Traditional contracts for network and computing resources are of "static" type where the customer is buying the right to use for a given price a fixed amount of resources for a long period of time. Typical examples are the case of contracting bandwidth in access networks and VPNs and the case of computing infrastructure that a customer leases (or buys) for fulfilling its IT needs. Current technology in access networks and grid computing allows suppliers to offer more flexible contracts to their customers allowing them to choose dynamically the amount of resources they are allowed to use at a given time. This flexibility may benefit the customers with bursty demand since it allows them to obtain resources only when they need them and pay only when they use them. We define contracts where time is discrete and a customer is allowed to buy a fixed amount of resources ahead of time for a price a, the "static" part of the contract, and complement this at each new time period by purchasing an extra amount at price b, the "dynamic" part of the contract. We investigate the properties of such contracts and compare them with contracts of purely static or dynamic type. Our results suggest that in general suppliers and customers are both better off when using such mixed contracts, and that purely dynamic contracts may not always be preferable compared to purely static ones. We also show that under price competition of suppliers using static contracts against suppliers using dynamic contracts, at the equilibrium both suppliers may secure some profit by segmenting the market.