Professor Pei-yu Chen shows that cloud computing services benefits firms and society in a forthcoming article that examines market structure, firm profitability and consumer welfare. On-demand services also known as cloud computing or utility computing provide firms the flexibility to pay on a per usage basis and include storage, web hosting, computing power, software, database, as well as more complex services, such as sales, payment and billing, support, supply chain management.
The study found that these services enable firms to enter existing markets, lead to creation of new markets, and also lead to downward pressure on prices in some markets. In markets where products are substantially differentiated, on-demand services allow firms to further increase prices and enhance their profitability. In other words, on-demand services may be more profitable for firms with differentiated products which is contrary to the common belief that such services are best for firms offering commodity products.
Overall, on-demand services provide several benefits to organizations: they grant firms flexibility by converting fixed costs to variable costs, removing capacity constraint and speed up setup time. However, privacy and security concerns and switching costs have been noted as the biggest barriers of adopting on-demand services.
The article titled “The Impact and Implications of On-Demand Services on Market Structure,” with Shin-yi Wu, has been accepted for publication in Information Systems Research. 2012.