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Optimal Digital Product Maintenance with a Continuous Revenue Stream

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  • James Fan
  • Christopher Griffin

Abstract

We use a control framework to analyze the digital vendor's profit maximization problem. The vendor captures market share by focusing costly effort on post-launch product maintenance, which influences user perception of the product and drives a revenue stream associated with product use. Our theoretical results show necessary and sufficient conditions for product maintenance to decline over a product's life-cycle, thus showing conditions when Lehman's 7th law of software evolution holds. We also numerically illustrate control paths under different market conditions.

Suggested Citation

  • James Fan & Christopher Griffin, 2014. "Optimal Digital Product Maintenance with a Continuous Revenue Stream," Papers 1412.8624, arXiv.org, revised Feb 2017.
    • Handle: RePEc:arx:papers:1412.8624
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    References listed on IDEAS

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    1. Arun Sundararajan, 2003. "Nonlinear pricing of information goods," Industrial Organization 0307003, University Library of Munich, Germany.
    2. Ke-Wei Huang & Arun Sundararajan, 2011. "Pricing Digital Goods: Discontinuous Costs and Shared Infrastructure," Information Systems Research, INFORMS, vol. 22(4), pages 721-738, December.
    3. Arun Sundararajan, 2004. "Nonlinear Pricing of Information Goods," Management Science, INFORMS, vol. 50(12), pages 1660-1673, December.
    4. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    5. Atanu Lahiri & Debabrata Dey, 2013. "Effects of Piracy on Quality of Information Goods," Management Science, INFORMS, vol. 59(1), pages 245-264, June.
    6. Roy Jones & Haim Mendelson, 2011. "Information Goods vs. Industrial Goods: Cost Structure and Competition," Management Science, INFORMS, vol. 57(1), pages 164-176, January.
    7. Leslie Olin Morgan & Ruskin M. Morgan & William L. Moore, 2001. "Quality and Time-to-Market Trade-offs when There Are Multiple Product Generations," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 89-104, June.
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    Cited by:

    1. Katarína Remeňová & Jakub Kintler & Nadežda Jankelová, 2020. "The General Concept of the Revenue Model for Sustainability Growth," Sustainability, MDPI, vol. 12(16), pages 1-12, August.
    2. Nicolosi, Gabriel & Friesz, Terry & Griffin, Christopher, 2022. "Approximation of optimal control surfaces for 2 × 2 skew-symmetric evolutionary game dynamics," Chaos, Solitons & Fractals, Elsevier, vol. 163(C).

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