Sell First Fix Later: Impact of Patching on Software Quality
This paper presents an economic model of fixing or patching a software problem after the product has been released in the market. Specifically, a software firm’s trade-off in releasing a buggy product early and investments in fixing it later is modelled. It is first shown that patching investments and time to enter the market are strategic complements such that higher investments in patching capability allow the firm to enter the market earlier. Just as the marginal cost of producing software can be effectively zero, so can be the marginal cost of repairing multiple copies of defective software by issuing patches. It is shown that due to the fixed cost nature of investments in patching, a vendor has incentives to release a buggier product early and patch it later in a larger market. This result is contrasted with other physical good markets. Thus, it is shown that a monopolist releases a product with fewer bugs but later than what is socially optimal. The model is extended to incorporate duopoly competition and show that in competition, the high value firm always enters earlier than the monopolist. Ironically the firm offering greater value to customers releases a product that initially is of lower quality (more bugs), but provides the greater value by releasing early (so customers can use the product sooner) and by investing more in patching so it can provide better after-sale support to its customers.
Publication Year: 2003
Type: Working Paper
Working Paper Number: 16
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