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Shareware competition: Selling an experience

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  • Alexandre Gaudeul

    (University of East Anglia - Norwich)

Abstract

A 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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File URL: http://128.118.178.162/eps/game/papers/0409/0409008.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0409008.

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Length: 46 pages
Date of creation: 17 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpga:0409008

Note: Type of Document - pdf; pages: 46
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Web page: http://128.118.178.162

Related research

Keywords: Experience goods; Transaction costs; Technical compatibility; Mechanism competition; information goods; sampling; switching costs;

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References

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  1. Bouckaert, Jan & Degryse, Hans, 1998. "Price Competition Between an Expert and a Non-Expert," CEPR Discussion Papers 1905, C.E.P.R. Discussion Papers.
  2. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  3. Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Kala Krishna & Tor Winston, 2000. "If at First You Don't Succeed...: Profits, Prices and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity," NBER Working Papers 7494, National Bureau of Economic Research, Inc.
  5. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
  7. repec:att:wimass:9509 is not listed on IDEAS
  8. Baye, Michael R. & Morgan, John, 1999. "A folk theorem for one-shot Bertrand games," Economics Letters, Elsevier, vol. 65(1), pages 59-65, October.
  9. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  10. Che, Yeon-Koo, 1996. "Customer Return Policies for Experience Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 17-24, March.
  11. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
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