Freemium as Optimal Menu Pricing

Susumu Sato

MPRA Paper from University Library of Munich, Germany

Abstract: In online contents markets, content providers collect revenues from both consumers and advertisers by segmenting consumers who are willing to avoid advertisements and who are not. To analyze such situations, I construct a model of menu pricing by advertising platforms in two-sided markets. I find that, under certain condition, although a monopolistic platform can choose any menu of price-advertisement pairs, the optimal menu consists of only two services: ad-supported basic service and ad-free premium service. In addition, if the willingness to pay of advertisers is sufficiently high, the basic service is offered for free. This menu pricing is well known as freemium. Furthermore, this binary structure remains to hold an equilibrium menu pricing even under duopoly.

Keywords: Freemium; menu pricing; two-sided markets (search for similar items in EconPapers)
JEL-codes: D42 D43 D85 L86 M21 M37 (search for similar items in EconPapers)
Date: 2017-09-22
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Freemium as optimal menu pricing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81599

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