Shareware competition: Selling an experience
AbstractA firm may allow customers to learn the value of its product prior to buying it. This increases their willingness to pay, even though it also leads some not to buy. That strategy may also be used as a competitive tool to increase its product's attractiveness. This paper examines competition between ex-ante identical firms that sell horizontally differentiated and mutually exclusive experience goods. Customers incur set-up costs when buying a good, but those set-up costs are partly recoverable if they then decide to buy the product of a competitor. The main conclusion from this paper is that while a firm that gives information about its product makes higher profits than a competing firm that chooses not to do so, a firm may however choose that last option in order to avoid being in direct competition with a firm that is more open about the value of its product.
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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0409008.
Length: 46 pages
Date of creation: 17 Sep 2004
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Experience goods; Transaction costs; Technical compatibility; Mechanism competition; information goods; sampling; switching costs;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
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