Tagungsband zum Doctoral Consortium der WI 2009

On the Enforcement of Institutions for Reducing Uncertainty
in Utility Computing Computational Economies
1. Scenario and problem definition
WI Doctoral Consortium 2009 1
Tina Balke 1
Supervisor: Prof. Dr. T. Eymann 1
1 University of Bayreuth,
Chair for Information Systems Management,
Universitätsstr. 30, 95447 Bayreuth, Germany
1.1. The Vision of Perfect Competition Utility Computing Computational Economies
The vision of Utility Computing (UtiC) has gained significant interest in the last years and has
become a popular buzzword, that describes the idea of packaging of computing resources, such as
storage space, server capacity, bandwidth or computer processing time, as a metered service similar
to a traditional public utility (such as electricity, water, natural gas, or telephone network) and the
provision of these fungible resources over the Internet based on usage rather than on a flat-rate
basis 1 . UtiC envisions that in contrast to traditional models of web hosting where the web site
owner purchases or leases a single server or space on a shared server and is charged a fixed fee, the
fixed costs are substituted by variable costs and he is charged upon how many of the fungible
resources he actually uses on demand over a given period of time in order to perform his
computationally intensive calculations. The idea behind this vision is that computational economies
(i.e. markets) are used for allocating scarce UtiC resources [1] as not only UtiC can be refined in
such a way that it fulfills all fundamental functions necessary to be treated as a computational
economy [24], but in addition the price mechanism of computational economies works as “invisible
hand” enabling an efficient, scalable and stable UtiC resource allocation. The corresponding
business idea is that if a company has to pay only for what it is using it can adapt its cost structure
and will be able to economize, i.e. save money, while the company offering utility computing
resources can benefit from economies of scale by using the same infrastructure to serve multiple
clients [4]. Looking at existing markets in which UtiC resources are traded (and thereby going
down from the high level economic concept of UtiC to cloud computing or grid computing) it has
to be noted that at the moment oligopoly-like infrastructures are predominant in this area, i.e. a few
large sellers serve a large number of small buyers. However, from an economic point of view, this
situation is problematic, as oligopolies strongly favor sellers and lead to an uneven wealth
distribution as the sellers can agree on a joint price above the market rate that would otherwise
prevail in a competitive environment. As however, UtiC builds on the Internet as underlying
infrastructure and today Internet access is getting cheaper and cheaper, it can be argued that
relatively small entry barriers for new sellers exist that will want to compete with the established
oligopolistic sellers for profitable market shares. As soon as these sellers do enter the market and do
not follow the oligopolistic price but underbid it, a price competition will be started moving the
price downwards. This again will attract new buyers as well as new sellers that want to siphon off
1 It is important to note that although the services offered by the service providers are individualized, their basic
components are very standardized resources that can be easily exchanged. Thus, a telephone provider for example may
provide his customers with very different telephone packages; however the underlying resources he uses are
standardized telephone units.