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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 Berlin, School of Business & Economics in its series Discussion Papers with number 2004/28.

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Date of creation: 2004
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Handle: RePEc:zbw:fubsbe:200428

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References

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  1. Moraga-Gonzalez, Jose Luis, 2000. "Quality uncertainty and informative advertising," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 615-640, May.
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  7. Volckart, Oliver & Wolf, Nikolaus, 2004. "Estimating medieval market integration: Evidence from exchange rates," Discussion Papers 2004/21, Free University Berlin, School of Business & Economics.
  8. repec:fth:inseep:9936 is not listed on IDEAS
  9. 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.
  10. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
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Cited by:
  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.
  2. 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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