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Capacity Provision Networks: Foundations of Markets for Sharable Resources in Distributed Computational Economies

Department of Management Science and Systems, SUNY at Buffalo, Buffalo, New York 14260
Department of Information Systems and Operations Management, University of Washington, Seattle, Washington 98195
Department of Operations and Information Management, University of Connecticut, Storrs, Connecticut 06269
Department of Management Science and Systems, SUNY at Buffalo, Buffalo, New York 14260
Department of Management Science and Information Risk, and Operations Management, University of Texas at Austin, Austin, Texas 78712
yedu{at}buffalo.edu
gengxj{at}u.washington.edu
ram.gopal{at}business.uconn.edu
rramesh{at}buffalo.edu
abw{at}uts.cc.utexas.edu

With the rapid growth of rich-media content over the Internet, content and service providers (SP) are increasingly facing the problem of managing their service resources cost-effectively while ensuring a high quality of service (QoS) delivery at the same time. In this research we conceptualize and model an Internet-based storage provisioning network for rich-media content delivery. This is modeled as a capacity provision network (CPN) where participants possess service infrastructures and leverage their topographies to effectively serve specific customer segments. A CPN is a network of SPs coordinated through an allocation hub. We first develop the notion of discounted QoS capabilities of storage resources. We then investigate the stability of the discount factors over time and the network topography using a test-bed on the Internet through a longitudinal empirical study. Finally, we develop a market maker mechanism for optimal multilateral allocation and surplus sharing in a network. The proposed CPN is closely tied to two fundamental properties of Internet service technology: positive network externality among cooperating SPs and the property of effective multiplication of capacity allocation among several distributed service sites. We show that there exist significant incentives for SPs to engage in cooperative allocation and surplus sharing. We further demonstrate that intermediation can enhance the allocation effectiveness and that the opportunity to allocation and surplus sharing can play an important role in infrastructure planning. In conclusion, this study demonstrates the practical business viability of a cooperative CPN market.

Key Words: capacity provision networks; resource sharing; online market; distributed computation; quality of service
History: This paper was received on February 10, 2006.