Effects of channel encroachment on the software and service decisions in it supply chains

Tinghai Ren; Nengmin Zeng; Dafei Wang; Shuwei Cheng

doi:10.3934/jimo.2021136

Article Contents

2022, Volume 18, Issue 5: 3787-3806. Doi: 10.3934/jimo.2021136

This issue Previous Article Direct optimal control for time-delay systems via a lifted multiple shooting algorithm Next Article

Effects of channel encroachment on the software and service decisions in it supply chains

1.
School of Business Administration, Guizhou University of Finance and Economics, Guiyang 550001, China
2.
School of Economics and Management, Harbin Engineering University, Harbin 150001, China

^* Corresponding author: Tinghai Ren
^* Corresponding author: Tinghai Ren

Received: November 30, 2020

Revised: April 30, 2021

Early access: August 2021

Published: November 2022

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Abstract

Currently, many upstream software developers not only sell software through downstream service providers, but also directly sell it to clients. However, in the field of IT service supply chain management, there is a lack of research on the channel encroachment of software developers. In this study, we consider an IT service supply chain with a software developer, a service provider and client enterprises. Clients can either purchase the software (developed by the software developer) from the provider with a high price and additional pre-sale services, or directly purchase it from the developer with a low price but without pre-sale service. After purchasing the software, the clients can also purchase the extended warranty service from the developer. The study shows that the market size occupied by the developer and the intensity of competition between the two parties will neither affect the developer's product and service pricing decisions, nor influence the total demand for software products and extended warranty services, and thus will not impact his own profit. However, these factors will impact the provider's decisions for pre-sale service quality and software sales price, thereby affecting the provider's software demand and profit, and thus impact the performance of the supply chain. In addition, as the intensity of competition between both parties increases, the provider will simultaneously choose to reduce the pre-sales service quality and the software sales price to compete with the developer. Different from conclusions of the existing research on competition, we surprisingly observe that as the sensitivity of client enterprises to the extended warranty services price increases, both parties will increase the software price to compete. The encroachment of the developer will reduce the provider's software demand and profit, and thus lead to a decline in the performance of the supply chain. Therefore, the encroachment of the developer is an act of squeezing out partners by decreasing the profit of the provider, but without affecting his own profit.

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Mathematics Subject Classification: Primary: 58F15, 58F17; Secondary: 53C35.

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Figure 1. The structure of IT service supply chain

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Figure 2. Timeline of the events

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Figure 3. Monotonicity of ($ p_{pm}^{\ast} $, $ p_{s}^{\ast} $, $ s^{\ast} $, $ p_{pr}^{\ast} $) on $ \alpha $

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Figure 4. Monotonicity of ($ p_{pm}^{\ast} $, $ p_{s}^{\ast} $, $ s^{\ast} $, $ p_{pr}^{\ast} $) on $ \sigma $

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Figure 5. Monotonicity of ($ D_{pm} $, $ D_{pr} $, $ D_{p} $, $ D_{s} $) on $ \alpha $

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Figure 6. Monotonicity of ($ D_{pm} $, $ D_{pr} $, $ D_{p} $, $ D_{s} $) on $ \sigma $

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Figure 7. Monotonicity of ($ \pi_{m} $, $ \pi_{r} $, $ \pi $) on $ \alpha $

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Figure 8. Monotonicity of ($ \pi_{m} $, $ \pi_{r} $, $ \pi $, $ D_{s} $) on $ \sigma $

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Table 1. The relationship between the equilibrium decision ($ p_{pm}^{\ast} $, $ p_{s}^{\ast} $, $ s^{\ast} $, $ p_{pr}^{\ast} $) and exogenous parameters ($ \alpha $, $ c_{1} $, $ \sigma $, $ \eta $)

Equilibrium decisions	Exogenous parameters
Equilibrium decisions	Monotoni- city on $ \alpha $	Monotoni- city on $ c_{1} $	Monotoni- city on $ \sigma $	Monotoni- city on $ \eta $
$ p_{pm}^{\ast} $	-	$ \uparrow $	-	$ \uparrow $
$ s^{\ast} $	$ \downarrow $	$ \downarrow $	$ \downarrow $	$ \downarrow $
$ p_{s}^{\ast} $	-	$ \uparrow $	-	$ \downarrow $
$ p_{pr}^{\ast} $	$ \downarrow $	$ \uparrow $	$ \downarrow $	$ \uparrow $
Note: "$ \uparrow $" represents "increasing", "$ \downarrow $" represents "decreasing", and "-" represents irrelevance.

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Table 2. The relationship between the demands ($ D_{pm} $, $ D_{pr} $, $ D_{p} $, $ D_{s} $) and exogenous parameters ($ \alpha $, $ c_{1} $, $ \sigma $, $ \eta $)

Software and service demand	Exogenous parameters
	Mono- toni- city on $ \alpha $	Mono- toni- city on $ c_{1} $	Mono- toni- city on $ \sigma $	Monotonicity on $ \eta $
	$ D_{pm} $	$ \uparrow $	$ \downarrow $	$ \uparrow $	$ \downarrow $
	$ D_{pr} $	$ \downarrow $	$ \downarrow $	$ \downarrow $	$ \downarrow $
	$ D_{p} $	-	$ \downarrow $	-	$ \downarrow $
$ D_{s} $	-	$ \downarrow $	-	$\downarrow, \text{if} ~~\left\{\begin{array}{l}1 / 2 <\eta <1, \\ (1-\eta) / \eta <c_{1} <1 /[4 \eta(1-\eta)]\end{array}\right\}, \\ \uparrow, \text{if} ~~\left\{\begin{array}{l}1 / 2 <\eta <1 \\ 1 /[4 \eta(1-\eta)] <c_{1} <c_{0}\end{array}\right\}, \\ \downarrow, \text{if} ~~\left\{\begin{array}{l}\eta>1, \\ (1-\eta) / \eta <c_{1} <c_{0}\end{array}\right\} .$
Note: "$ \uparrow $" represents "increasing", "$ \downarrow $ " represents "decreasing", "-" represents irrelevance, and $ c_{0} =\min \frac{({3-4\alpha} )\eta +2\alpha -1}{\eta}, \frac{1}{2(1-\eta)} $.

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Table 3. The relationship between the profits ($ \pi_{m} $, $ \pi_{r} $, $ \pi $) and the exogenous parameters ($ \alpha $, $ c_{1} $, $ \sigma $, $ \eta $)

Profit	Exogenous parameters
Profit	Monotoni- city on $ \alpha $	Monotoni- city on $ c_{1} $	Monotoni- city on $ \sigma $	Monotoni- city on $ \eta $
$ \pi_{m} $	-	$ \downarrow $	-	$ \downarrow $
$ \pi_{r} $	$ \downarrow $	$ \downarrow $	$ \downarrow $	$ \downarrow $
$ \pi $	$ \downarrow $	$ \downarrow $	$ \downarrow $	$ \downarrow $
Note: "$ \uparrow $" represents "increasing", "$ \downarrow $ " represents "decreasing", and "-" represents irrelevance.

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