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Designing Free Sofware for Marketing: A Game Theoretic Approach

Christophe Faugere () and Giri Kumar Tayi
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Giri Kumar Tayi: U at Albany

Game Theory and Information from University Library of Munich, Germany

Abstract: We develop a vertical differentiation game-theoretic model that addresses the issue of designing free software samples for attaining follow-on sales. When software samples are akin to durable goods, a Monopolist giving a free sample away is likely to engender the cannibalization of sales of its commercial product. We analyze the optimal design of free software according to two characteristics: the trial time allotted for sampling (potentially renewable) and the proportion of features included in the sample. We find that these two dimensions play different roles whenever the software product is innovative or standard. We draw implications regarding the effectiveness of marketing strategies depending on the type of software product offered by a Monopolist.

Keywords: Vertical Differentiation; Monopolist; Free sample; Software; Durable goods; Sales Cannibalization; Optimal Design. (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-11-06
Note: Type of Document - pdf; prepared on Win2000; to print on HP LaserJet 4 plus; pages: 27; figures: Embedded
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