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.

Pricing and Profit Management Models for SaaS Providers and IaaS Providers

“…This section reviews prior works on pricing models with the aim of assessing the current status of research and practices and identifying gaps. While there exist pricing studies in the software industry [15], pricing and profit management between the IaaS providers and the SaaS providers has not been well investigated. Research on business-tobusiness (B2B) marketing emphasizes the importance of pricing for every firm's profitability and long-term survival [16].…”