Compensation and pricing strategies in cloud service SLAs: Considering participants’ risk attitudes and consumer quality perception

• Published in: Electronic commerce research and applications 2022-11, Vol.56, p.101215, Article 101215
• Main Authors: Chen, Fuzan, Lu, Aijun, Wu, Harris, Li, Minqiang
• Format: Article
• Language: English
• Subjects: Cloud service; Guarantee compensation; Pricing; Quality perception; Quality signal; Risk attitudes; Service level agreement
• ISSN: 1567-4223; 1873-7846
• DOI: 10.1016/j.elerap.2022.101215

•The optimal decisions on guaranteed compensation and pricing for cloud services.•The impact of participants’ risk attitudes is different for existing and new service cases.•We consider the signaling effect of compensation when users do not know the service quality. Appropriate pricing and compensation terms in service level agreements (SLAs) help cloud service providers (CSPs) attract users and make profits. However, the research related to cloud services mainly has focused on the issue of pricing strategies, underestimating the role of compensation. Moreover, few studies have considered all possible risk attitudes of both the CSP and customers when guiding the CSP to make decisions. Based on mathematical game models, this study develops the CSP’s profit-maximizing compensation and pricing strategies for existing and new cloud service scenarios, respectively. We investigate the interaction between compensation and price, as well as the effect of participants’ risk attitudes on the CSP’s optimal decisions. Considering the different information acquired by users in the existing and new service scenarios, we further explore the signaling effect of compensation on consumer quality perception. These findings inform CSPs in designing and implementing SLAs by setting pricing and compensation terms wisely.