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Should You Kill or Embrace Your Competitor: Cloud Service and Competition Strategy

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  • Bo Li
  • Subodha Kumar

Abstract

Cloud services have grown rapidly in recent years as a new form of service, but there exists scant research on the competition and service offering strategies of cloud service providers. We study these strategic choices by considering a setting where an incumbent cloud service provider may offer two service classes (premium and standard) and an entrant provider may offer the standard service. We analyze two competitive strategies the incumbent provider: (a) deterring competitor entry, and (b) not deterring competitor entry. We also evaluate two service offering strategies of the incumbent provider: (a) offering both the premium and the standard service, and (b) offering the premium service only. Based on the results of our model, we present several useful managerial insights. First of all, we find that, under monopoly setting, it may sometimes be beneficial for the service provider to encourage higher usage despite the extra cost. Further, in the duopoly setting, higher customer usage impacts the Deter/Allow strategy choice and is neither always beneficial nor always detrimental to the incumbent provider, and such impact depends on profit margin and customer usage distribution. We also find that a larger market encourages the incumbent provider to add the standard service and switch between Allow and Deter strategies, since a larger market size may reduce the profit of an incumbent provider sticking to the Deter strategy. On the capacity side, we discover that the incumbent provider should strive to deter entry threats when it is at a cost advantage in a small market.

Suggested Citation

  • Bo Li & Subodha Kumar, 2018. "Should You Kill or Embrace Your Competitor: Cloud Service and Competition Strategy," Production and Operations Management, Production and Operations Management Society, vol. 27(5), pages 822-838, May.
  • Handle: RePEc:bla:popmgt:v:27:y:2018:i:5:p:822-838
    DOI: 10.1111/poms.12843
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    Cited by:

    1. Bin Shen & Ciwei Dong & Stefan Minner, 2022. "Combating Copycats in the Supply Chain with Permissioned Blockchain Technology," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 138-154, January.
    2. Chen, Jing & Pun, Hubert & Li, Wei, 2018. "Using online channel to defer the launch of discount retailing store," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 120(C), pages 96-115.
    3. Bo Li & Subodha Kumar, 2022. "Managing Software‐as‐a‐Service: Pricing and operations," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2588-2608, June.
    4. Emre M. Demirezen & Subodha Kumar & Bala Shetty, 2020. "Two Is Better Than One: A Dynamic Analysis of Value Co‐Creation," Production and Operations Management, Production and Operations Management Society, vol. 29(9), pages 2057-2076, September.
    5. Tarun Jain & Jishnu Hazra & T. C. Edwin Cheng, 2020. "Illegal Content Monitoring on Social Platforms," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1837-1857, August.
    6. Lim, Chulmin & Kim, Seongcheol, 2022. "Why would the users of Google's cloud services intend to switch to alternative services?," 31st European Regional ITS Conference, Gothenburg 2022: Reining in Digital Platforms? Challenging monopolies, promoting competition and developing regulatory regimes 265653, International Telecommunications Society (ITS).
    7. Jing Li & Yulin Zhang, 2021. "More market awareness, more profit? Competitive environments, business expansions, and two‐sided markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 249-267, March.
    8. Shi Chen & Kamran Moinzadeh & Yong Tan, 2021. "Discount Schemes for the Preemptible Service of a Cloud Platform with Unutilized Capacity," Information Systems Research, INFORMS, vol. 32(3), pages 967-986, September.
    9. Liu, Sen & Chan, Felix T.S. & Yang, Junai & Niu, Ben, 2018. "Understanding the effect of cloud computing on organizational agility: An empirical examination," International Journal of Information Management, Elsevier, vol. 43(C), pages 98-111.
    10. Li, Bo & Tan, Zhen & Arreola-Risa, Antonio & Huang, Yiwei, 2023. "On the improvement of uncertain cloud service capacity," International Journal of Production Economics, Elsevier, vol. 258(C).
    11. Subodha Kumar & Rakesh R. Mallipeddi, 2022. "Impact of cybersecurity on operations and supply chain management: Emerging trends and future research directions," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4488-4500, December.
    12. Sen Lin & Bo Li & Antonio Arreola-Risa & Yiwei Huang, 2023. "Optimizing a single-product production-inventory system under constant absolute risk aversion," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 31(3), pages 510-537, October.
    13. Zhijun Yan & Lini Kuang & Liangfei Qiu, 2022. "Prosocial behaviors and economic performance: Evidence from an online mental healthcare platform," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3859-3876, October.
    14. Rajib L. Saha & Sumanta Singha & Subodha Kumar, 2021. "Does Congestion Always Hurt? Managing Discount Under Congestion in a Game-Theoretic Setting," Information Systems Research, INFORMS, vol. 32(4), pages 1347-1367, December.
    15. Jun Pei & Ping Yan & Subodha Kumar & Xinbao Liu, 2021. "How to React to Internal and External Sharing in B2C and C2C," Production and Operations Management, Production and Operations Management Society, vol. 30(1), pages 145-170, January.
    16. Manuel A. Nunez & Xue Bai & Linna Du, 2021. "Leveraging Slack Capacity in IaaS Contract Cloud Services," Production and Operations Management, Production and Operations Management Society, vol. 30(4), pages 883-901, April.
    17. Yan, Nina & Liu, Yang & Chen, Jing, 2022. "Competitors or frenemies? Strategic investment between competing channels," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    18. Zenan Zhou & Xiang Wan, 2022. "Does the Sharing Economy Technology Disrupt Incumbents? Exploring the Influences of Mobile Digital Freight Matching Platforms on Road Freight Logistics Firms," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 117-137, January.
    19. Mohammad Ebrahim Arbabian & Shi Chen & Kamran Moinzadeh, 2021. "Capacity Expansions with Bundled Supplies of Attributes: An Application to Server Procurement in Cloud Computing," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 191-209, 1-2.

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