  In Amazon EC2, cloud resources are sold through a combination of an on-demand
market, in which customers buy resources at a fixed price, and a spot market,
in which customers bid for an uncertain supply of excess resources. Standard
market environments suggest that an optimal design uses just one type of
market. We show the prevalence of a dual market system can be explained by
heterogeneous risk attitudes of customers. In our stylized model, we consider
unit demand risk-averse bidders. We show the model admits a unique equilibrium,
with higher revenue and higher welfare than using only spot markets.
Furthermore, as risk aversion increases, the usage of the on-demand market
increases. We conclude that risk attitudes are an important factor in cloud
resource allocation and should be incorporated into models of cloud markets.
