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"Download for Free" - When Do Providers of Digital Goods Offer Free Samples?

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  • Boom, Anette

Abstract

In a monopoly setting where consumers cannot observe the quality of the product we show that free samples which are of a lower quality than the marketed digital goods are used together with high prices as signals for a superior quality if the number of informed consumers is small and if the difference between the high and the low quality is not too small. Social welfare is higher, if the monopolist uses also free samples as signals, compared to a situation where he is restricted to pure price signalling. Both, the monopolist and consumers benefit from the additional signal.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 70.

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Date of creation: Sep 2004
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Handle: RePEc:trf:wpaper:70

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Keywords: Digital Goods; Free Samples; Multi-dimensional Signalling;

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References

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  8. Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 513-31, July.
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  10. Ram Orzach & Per Baltzer Overgaard & Yair Tauman, 2001. "Modest Advertising Signals Strength," CIE Discussion Papers 2001-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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  13. Kamp, Brad, 1998. "Complimentarily yours: Free examination copies and textbook prices: Comment," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 527-533, July.
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  15. repec:fth:inseep:9936 is not listed on IDEAS
  16. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  17. Hao Zhao, 2000. "Raising Awareness and Signaling Quality to Uninformed Consumers: A Price-Advertising Model," Marketing Science, INFORMS, vol. 19(4), pages 390-396, January.
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Cited by:
  1. Alexia Gaudeul, 2010. "Software marketing on the Internet: the use of samples and repositories," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 19(3), pages 259-281.
  2. Anindya Ghose & Arun Sundararajan, 2005. "Versioning and Quality Distortion in Software? Evidence from E-Commerce Panel Data," Working Papers 05-14, NET Institute, revised Oct 2005.
  3. Daniel Halbheer & Florian Stahl & Oded Koenigsberg & Donald R. Lehmann, 2013. "Digital Content Strategies," Working Papers 329, University of Zurich, Department of Business Administration (IBW).

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