<abstract xmlns="http://www.w3.org/1999/xhtml"><p> 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</p></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

Stackelberg Equilibrium of the Client and the Producer of Embedded Software

Faculty of Economics and Business, University of Zagreb, Croatia

Business Systems Research Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Stackelberg Equilibrium of the Client and the Producer of Embedded Software"}

Background: Our research assumes that the software quality affects the product validity. This assumption also refers to embedded software. Objectives: This...

Stackelberg Equilibrium of the Client and the Producer of Embedded Software

Published Online: Apr 23, 2014

Page range: 68 - 76

DOI: https://doi.org/10.2478/bsrj-2014-0006

Keywords
embedded software, Stackelberg equilibrium, producer's reaction function, comparative statics analysis, welfare loss

© Mirjana Pejić Bach

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Stackelberg Equilibrium of the Client and the Producer of Embedded Software

Published Online: Apr 23, 2014

Page range: 68 - 76

DOI: https://doi.org/10.2478/bsrj-2014-0006

Keywordsembedded software, Stackelberg equilibrium, producer's reaction function, comparative statics analysis, welfare loss

© Mirjana Pejić Bach

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
embedded software, Stackelberg equilibrium, producer's reaction function, comparative statics analysis, welfare loss