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Optimal Software Reuse in Incremental Software Development: A Transfer Pricing Approach

Author

Listed:
  • Yasin Ceran

    (Leavey School of Business, Santa Clara University, Santa Clara, California 95053)

  • Milind Dawande

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75083)

  • Dengpan Liu

    (College of Business, Iowa State University, Ames, Iowa 50011)

  • Vijay Mookerjee

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75083)

Abstract

This study develops optimal transfer pricing schemes that manage software reuse in incremental software development, namely, a development regime wherein users begin utilizing parts of the system that are released to them even before the system is entirely completed. In this setting, conflicts can arise between developers and users from divergent interests concerning the release of functionalities in the project. The release of functionalities is influenced by reuse, i.e., the effort spent by the development team to write code that can be reused within the same project or in future projects. For example, the development team may choose to spend extra effort to make certain portions of the system reusable because doing so could reduce the effort needed to develop the entire system. However, the additional effort spent on reuse could delay the release of certain critical functionality, making such a strategy suboptimal for the users. Thus, optimal reuse decisions for developers and users could be different. In addition, from the firm's perspective, reuse decisions must not only balance the objectives of developers and users for the current project, but reuse effort may be spent to benefit future projects. Our study also highlights the fact that reuse may not always be beneficial for the firm. To this end, we consider different instances of the user--developer conflict and provide transfer pricing schemes that operate under information asymmetry and achieve two key properties: firm-level optimality and truth revelation. This paper was accepted by Sandra Slaughter, information systems.

Suggested Citation

  • Yasin Ceran & Milind Dawande & Dengpan Liu & Vijay Mookerjee, 2014. "Optimal Software Reuse in Incremental Software Development: A Transfer Pricing Approach," Management Science, INFORMS, vol. 60(3), pages 541-559, March.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:3:p:541-559
    DOI: 10.1287/mnsc.2013.1757
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    References listed on IDEAS

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    Cited by:

    1. Jhih-Hua Jhang-Li & Cheng-Wei Chang, 2017. "Analyzing the operation of cloud supply chain: adoption barriers and business model," Electronic Commerce Research, Springer, vol. 17(4), pages 627-660, December.

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