"Download for Free" - When Do Providers of Digital Goods Offer Free Samples?
AbstractIn 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 InfoPaper 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.
Date of creation: Sep 2004
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Digital Goods; Free Samples; Multi-dimensional Signalling;
Other versions of this item:
- Boom, Anette, 2004. ""Download for Free": When do providers of digital goods offer free samples?," Discussion Papers 2004/28, Free University Berlin, School of Business & Economics.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-CUL-2005-12-01 (Cultural Economics)
- NEP-IND-2005-12-01 (Industrial Organization)
- NEP-MIC-2005-12-01 (Microeconomics)
- NEP-MKT-2005-12-01 (Marketing)
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