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

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Author Info
Anette Boom (Freie Universität Berlin)

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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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File URL: http://www.sfbtr15.de/dipa/70.pdf
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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers 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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Related research
Keywords: Digital Goods; Free Samples; Multi-dimensional Signalling;

Other versions of this item:

Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Orzach, Ram & Overgaard, Per Baltzer & Tauman, Yair, 2002. "Modest Advertising Signals Strength," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 340-358, Summer.
    Other versions:
  2. Sebastien Lecocq & Thierry Magnac & Marie-Claude Pichery & Michael Visser, 2004. "The impact of information on wine auction prices: results of an experiment," Research Unit Working Papers 0401, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
    Other versions:
  3. Foster, James E. & Horowitz, Andrew W., 1996. "Complimentarily yours: Free examination copies and textbook prices," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 85-99. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!]
  6. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
    Other versions:
  7. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
    Other versions:
  8. Kyle Bagwell & Per Baltzer Overgaard, 2005. "Look How Little I’m Advertising!," CIE Discussion Papers 2005-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  9. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
  10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  11. Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 513-31, July.
  12. Moraga-Gonzalez, Jose Luis, 2000. "Quality uncertainty and informative advertising," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 615-640, May. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexia Gaudeul, 2008. "Software Marketing on the Internet: the Use of Samples and Repositories," Working Papers 08-23, Centre for Competition Policy, University of East Anglia. [Downloadable!]
  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. [Downloadable!]
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This page was last updated on 2009-11-20.

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