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Stackelberg Equilibrium of the Client and the Producer of Embedded Software

Stackelberg Equilibrium of the Client and the Producer of Embedded Software Abstract Background: Our research assumes that the software quality affects the product validity. This assumption also refers to embedded software. Objectives: This paper analyses the Stackelberg equilibrium in which the consumer is the leader and the producer of embedded software is the follower. Methods/Approach: A comparative statics analysis of a producer's reaction is carried out and confirms our intuition that the product price is positively correlated to the number of employees and the software quality. Results: An increase in wage has an adverse effect on producer’s reaction. Derived results are illustrated numerically and Stackelberg and cooperative equilibrium are compared. It is shown that the welfare loss is smaller with higher quality software for any number of employees. Conclusions: Although the equilibrium involves less employed workers, the optimal software quality is higher. The optimal product price is lower, which puts the consumer and the producer in a better position http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Systems Research Journal de Gruyter

Stackelberg Equilibrium of the Client and the Producer of Embedded Software

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
1847-9375
eISSN
1847-9375
DOI
10.2478/bsrj-2014-0006
Publisher site
See Article on Publisher Site

Abstract

Abstract Background: Our research assumes that the software quality affects the product validity. This assumption also refers to embedded software. Objectives: This paper analyses the Stackelberg equilibrium in which the consumer is the leader and the producer of embedded software is the follower. Methods/Approach: A comparative statics analysis of a producer's reaction is carried out and confirms our intuition that the product price is positively correlated to the number of employees and the software quality. Results: An increase in wage has an adverse effect on producer’s reaction. Derived results are illustrated numerically and Stackelberg and cooperative equilibrium are compared. It is shown that the welfare loss is smaller with higher quality software for any number of employees. Conclusions: Although the equilibrium involves less employed workers, the optimal software quality is higher. The optimal product price is lower, which puts the consumer and the producer in a better position

Journal

Business Systems Research Journalde Gruyter

Published: Mar 1, 2014

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