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The Economics of Cloud Computing


  • Ergin Bayrak

    () (Department of Economics, University of Southern California)

  • John Conley

    () (Department of Economics, Vanderbilt University)

  • Simon Wilkie

    () (Department of Economics, University of Southern California)


Cloud computing brings together several existing technologies including service oriented architecture, distributed grid computing, virtualization, and broadband networking to provide software, infrastructure, and platforms as services. Under the old IT model, companies built their own server farms designed to meet peak demand using bundled hardware and software solutions. This was time consuming, capital intensive and relatively inflexible. Under the cloud computing model, firms can rent as many virtual machines as they need at any given time, and then either design or use off-the-shelf solutions to integrate company-wide data in order to easily distribute access to users both within and outside of the company firewall. This converts fixed capital costs into variable costs, prevents under and over provisioning, and allows minute by minute flexibly. Consumers are also increasingly turning to the cloud for computing service through such applications as Gmail, Pandora, and Facebook. The purpose of this paper is to discuss this new and transformative technology, survey the existing economics literature on the subject, and suggest potential directions for new research.

Suggested Citation

  • Ergin Bayrak & John Conley & Simon Wilkie, 2011. "The Economics of Cloud Computing," Vanderbilt University Department of Economics Working Papers 1118, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:1118

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    References listed on IDEAS

    1. Dorothy Leonard-Barton & Isabelle Deschamps, 1988. "Managerial Influence in the Implementation of New Technology," Management Science, INFORMS, vol. 34(10), pages 1252-1265, October.
    2. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    3. Aumann, Robert J. & Maschler, Michael, 1985. "Game theoretic analysis of a bankruptcy problem from the Talmud," Journal of Economic Theory, Elsevier, vol. 36(2), pages 195-213, August.
    4. Federico Etro, 2011. "The Economics of Cloud Computing," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(2), pages 7-22, May.
    5. John P. Conley & Fan‐Chin Kung, 2010. "Private Benefits, Warm Glow, and Reputation in the Free and Open Source Software Production Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(4), pages 665-689, August.
    6. Fred D. Davis & Richard P. Bagozzi & Paul R. Warshaw, 1989. "User Acceptance of Computer Technology: A Comparison of Two Theoretical Models," Management Science, INFORMS, vol. 35(8), pages 982-1003, August.
    7. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    Cited by:

    1. Candel Haug, Katharina & Kretschmer, Tobias & Strobel, Thomas, 2016. "Cloud adaptiveness within industry sectors – Measurement and observations," Telecommunications Policy, Elsevier, vol. 40(4), pages 291-306.
    2. Josep Domenech & Raul Peña-Ortiz & Jose A. Gil & Ana Pont, 2016. "A Methodology for Economic Evaluation of Cloud-Based Web Applications," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 15(06), pages 1555-1578, November.
    3. Nicola Dimitri & Ramona Apostol, 2016. "Pricing Cloud Computing Services," Working Papers 2016/13, Maastricht School of Management.

    More about this item


    Cloud Computing; SaaS; PaaS. IaaS; Economics. Information Technology;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D1 - Microeconomics - - Household Behavior
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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