This study by Subodha Kumar and colleagues, published in Management Science, investigates cloud providers’ choices to offer compatibility in multicloud platforms—a strategy increasingly used to reduce latency by accessing multiple providers. The authors model competition between two providers deciding whether to enable compatibility, considering costs and market effects. They find that compatibility arises in equilibrium only if compatibility costs are not too high. When compatibility exists, both providers raise prices due to softer competition, but both earn higher profits. The dominant provider consistently gains more demand, while the smaller may lose some. Buyers benefit from compatibility primarily when incompatibility costs are high or both costs are low; otherwise, higher prices may reduce their welfare. This nuanced balance highlights the strategic trade-offs providers face between gaining market share and incurring costs. The results guide providers on compatibility investment and pricing strategies and suggest policymakers promote cost-sharing to support compatibility and safeguard buyers.
Is Multicloud the Future? Desirability of Compatibility in Cloud Computing Market
