This work extends earlier work on software upgrades as well as research on real options and IT investment. We consider a two-period model with one software provider who develops and releases a software product to the market. The result shows that the profit from the upgrade policy increases when the market size uncertainty increases. The option value of upgrade is higher when there is more market uncertainty. Also, the value of investing in design effort is more when the development cost is low.
Ji, Yonghua; Mookerjee, Vijay; and Radhakrishnan, Suresh, "Real Options and Software Upgrades: An Economic Analysis" (2002). ICIS 2002 Proceedings. 66.