Stackelberg Equilibrium of the Client and the Producer of Embedded Software

• Authors: Ilko Vrankić , Mirjana Pejić Bach , Mira Krpan
• Languages of publication: EN

Abstracts

EN

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

Keywords

EN

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

• Publisher: Sciendo
• Journal: Business Systems Research Journal
• Year: 2014
• Volume: 5
• Issue: 1
• Pages: 68-76

Dates

published

2014-03-01

online

2014-04-23

Contributors

author

Ilko Vrankić

• Faculty of Economics and Business, University of Zagreb, Croatia

author

Mirjana Pejić Bach

• Faculty of Economics and Business, University of Zagreb, Croatia

author

Mira Krpan

• Faculty of Economics and Business, University of Zagreb, Croatia

References

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Identifiers

DOI

10.2478/bsrj-2014-0006