Why do AWS spot-instance prices spike above the “on demand” pricing

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Amazon Pricing on Spot Instance Inconsistencies

This is something which will be best explained through screenshots of a historical chart of instance pricings.

If you look at a lot of the instance prices for spot instances, you will notice regular patterns of spikes.
See here:

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As you can see, the price for this compute medium instance, regularly spikes above the on demand price.

A c1.medium instance (on demand), would only cost $0.186 per hour. But for a period of a few weeks, in zone B, the price would regularly spike to $1.20. This is some 6 times the actual on demand price.

It's also not isolated. If you look at zone-b again for small instances, there is a similar, spike frequently. Which goes 4x the on demand pricing.

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Does anyone know why this happens?

Here are a few suggestions

  • Someone entered $1.2 instead of $0.12 (I would discount this since it happened 20 times over the space of 3 weeks).

  • Amazon regularly artifically inflate their prices by bidding on their own instances to get the most bang for their buck. (I would discount this since it would be ridiculous and bad business)

  • Some company launched 1000 servers at once, and wants to make sure that they all launch. (I would discount this since they would presumably launch them at a price which would be below the minimum on demand price. Why would you pay above on demand for a single server?).

  • It's a bug in their reporting?

Best Answer

There is a paper by folks from Israel Institute of Technology which analyzes the spot market. Their conclusion is that spot prices are not bid driven but rather generated with AR(1) function. So in such case it wouldn't be due to other's bids, but due to algorithm used.

http://www.cs.technion.ac.il/~ladypine/spotprice-ieee.pdf

Though, I guess it could have changed if spot market really reached the level where they could get nice prices from demand/supply. As Matt suggest it become a common practice to drive costs down with spot instances and many overbid on-demand prices to avoid down time. In longer run it was still cost effective ... but is it still? The real problem is that apart of Amazon nobody really knows how the prices are created.

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