Agency mode selection and software competition in supply chains

Abstract

AbstractAt present, many software developers work with downstream service providers to sell software and services. For political or economic reasons, foreign developers may be not allowed to sell software and services directly in the country of providers, but they can authorize their software to the providers for sale. In this study, we examine two types of IT supply chain (ITSC), namely, “Agenting Domestic Software” (Mode 1) and “Agenting Foreign Software” (Mode 2), each with a domestic developer/a foreign developer, a service provider, and client enterprises. In both modes, clients can either pay a high price to purchase software with accessorial pre‐sale service from the provider, or firsthand acquire it from the domestic developer at a low price but without pre‐sale service. We observe that in Mode 1, the domestic developer's market scale and the competition intensity of software have no effect on the domestic developer's decisions and profit; however, they have influences on the provider's decisions and profit. In Mode 2, the profits of ITSC members may increase with the intensity of software competition. When the domestic developer's market scale is small (large), and the domestic developer has (loses) the advantage of low extended‐warranty‐service (EWS) cost, Mode 1 (2) is more beneficial to the domestic developer than Mode 2 (1); however, the provider is more willing to choose Mode 2 (Mode 1). In other cases, either Mode 1 or Mode 2 may result in a win‐win situation for the domestic developer and provider.