Pricing Decisions and Strategies for Software Products in the Presence of Requirement Changes

Abstract

The presence of software requirement changes (RC) during project development is a critical challenge for the developer to offer software contract designs Because under the presence of RC the decisions toward the contract offer will impact to project’s price spent by the developers Managers of software companies must decide what contract designs to offer to clients in the development of software Abstracting from an example drawn from the software outsourcing industry we exhibit three designs of software contracts incorporating fixed price and time-and-materials policies Specifically a software company offers a fixed-price but declines the modification for RC (Contract N) offers a fixed-price and agree to RC with additional charge (Contract W) or initially provides a fixed price and then charges an additional fee based on the time-and-material in response to RC (Contract P) We examine the strategic choices of three contract designs in a two-period game We carry out a full analysis of monopoly and duopoly models; we use the monopoly model as the base model to construct the duopoly model Meanwhile in the duopoly model we capture nine combination scenarios between two developers We characterize the conditions under which the contracts can be the best decision for developers in different competitive models with price as our decision variable Furthermore we provide managerial insights into contract strategies and developers’ performance under the presence of RC Our finding states if the level of the second period valuation due to additional RC will influence the price and profit depending on the contract designs and combination scenarios

Date of Award	2020
Original language	English
Supervisor	Cheng-Han Wu (Supervisor)