Abstract
As frequent service failures raise user concerns, guarantee compensation has become a competitive instrument for cloud service providers (CSPs) in addition to price. This study proposes a game-theoretical model where two CSPs compete on both price and compensation. We consider two roles of compensation: (1) remedying user losses and (2) helping users to form quality perception. The results indicate that the higher-quality CSP should always guarantee higher compensation but may not always charge a higher price. We further investigate the signaling policies and find that the lower-quality CSP is more likely to signal a higher-than-actual quality.
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