Market provision of custom software: learning effects and low-balling
Article Abstract:
The costs of developing custom software usually drop in time and experience as a result of program code reusability and learning effects in software development. Developer, therefore, are given the opportunity to become first movers in the market. A study is conducted to determine whether falling development costs benefit consumers in the form of lower prices when software companies bid strategically. The equilibrium bidding strategies of two independent developers competing for a series of similar projects are analyzed using a game theoretic model of bidding auctions. It is shown that buyers do not necessary enjoy the benefits of declining development costs. This is because developers that aspire to become the first mover and, eventually, the market leader tend to accept small profits or even incur losses in their first projects. They try to make up for this by maintaining a certain profit margin even as development costs decline over time.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1995
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Decentralized multi-echelon supply chains: incentives and information
Article Abstract:
A study considers the scenario of a supply chain where products progress through an ordered series of multiple locations before finally reaching end users. Supply chains with multiple inventory locations frequently function in a decentralized manner. Contemporary, large business firms continually encounter the issue of making timely decisions using specialized information within the context of decentralized decision making. Performance measures are needed in these decentralized, multi-echelon supply chains to align the incentives and interests of its numerous managers. Some desirable properties of such incentive schemes are cost conservation, incentive compatibility and the ability to be informationally 'decentralizable.' A performance measurement scheme satisfying these criteria is suggested and discussed.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1999
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Cost allocation revisited: an optimality result
Article Abstract:
A game-theoretic model is presented which analyzes the effects of different accounting rules on the generation of important data and ex-post efficiency in decisions relating to acquisitions and allocations. Research results indicate that the cost allocation method is a complete-information-efficient optimality in decisions related to acquisition and allocation. Main assumptions associated with the research results are also discussed.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1989
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