Wednesday, July 27, 2022

Should the Federal Govt "spread" its cloud computing contracts around?

WSJ Reports:  

Amazon dominates the cloud-infrastructure industry with a 39% share of the 2021 global market ahead of Microsoft at No. 2 with a 21% share, according to research firm Gartner Inc. ... 
Microsoft has grown frustrated about its lack of progress selling its Azure cloud services to the U.S. federal government with its rival’s Amazon Web Services continuing to win most of those contracts, said some of the people familiar with its efforts.  ...   
Microsoft Corp. is rallying other big name cloud-computing providers such as Alphabet Inc.’s Google and Oracle Corp. to press the U.S. government into spreading its spending on such services more widely, taking aim at Inc.’s dominance in such contracts. 

So what would be the effects of this?  Some middling economists have estimated that similar efforts by the Small Business Administration to "spread its spending around" (by "setting aside" auctions for small firms) raises prices by 15%.   

The reason is simple, losing bidders set the price.  If you limit the pool of available bidders, you make it easier for the winner to outbid the losing bidders, so price goes up in a procurement auction (where bidders compete to sell).

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