Sell First, Fix Later: Impact of Patching on Software Quality

We present a model of fixing or patching a software problem after the product has been released in the market. Specifically, we model a software firm’s trade-off in releasing a buggy product early and investments in fixing it later. We first show 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. We show that due to the fixed cost nature of investments in patching, a software vendor has incentives to release a buggier product early and patch it later in a larger market. Thus, a software monopolist releases a product with fewer bugs but later than what is socially optimal. We contrast this result with physical good markets where market size does not play any role in quality provision. We also extend our model 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 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.