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Digital Content Strategies

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Author Info

  • Daniel Halbheer

    ()
    (Department of Business Administration (IBW), University of Zurich)

  • Florian Stahl

    ()
    (Department of Business Administration (IBW), University of Zurich)

  • Oded Koenigsberg

    ()
    (Department of Marketing, London Business School)

  • Donald R. Lehmann

    ()
    (Marketing, Columbia Business School)

Abstract

This paper studies content strategies for online publishers of digital information goods. It examines sampling strategies and compares their performance to paid content and free content strategies. A sampling strategy, where some of the content is offered for free and consumers are charged for access to the rest, is known as a metered model in the newspaper industry. We analyze optimal decisions concerning the size of the sample and the price of the paid content when sampling serves the dual purpose of disclosing content quality and generating advertising revenue. We show in a reduced-form model how the publishers optimal ratio of advertising revenue to sales revenue is linked to characteristics of both the content market and the advertising market. We assume that consumers learn about content quality from the free samples in a Bayesian fashion. Surprisingly, we find that it can be optimal for the publisher to generate advertising revenue by offering free samples even when sampling reduces both prior quality expectations and content demand. In addition, we show that it can be optimal for the publisher to refrain from revealing quality through free samples when advertising effectiveness is low and content quality is high.

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File URL: http://repec.business.uzh.ch/RePEc/zrh/wpaper/329_IBW_full.pdf
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Bibliographic Info

Paper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 329.

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Length: 34 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:zrh:wpaper:329

Contact details of provider:
Postal: Rämistrasse 71, CH - 8001 Zürich
Web page: http://www.business.uzh.ch
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Related research

Keywords: Information Goods; Sampling; Content Pricing; Advertising; Dorfman-Steiner Condition; Pricing; Product Quality; Bayesian Learning; News Websites;

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References

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  1. V. Joseph Hotz & Mo Xiao, 2006. "Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers," NBER Working Papers 11937, National Bureau of Economic Research, Inc.
  2. Hemant K. Bhargava & Vidyanand Choudhary, 2008. "Research Note--When Is Versioning Optimal for Information Goods?," Management Science, INFORMS, vol. 54(5), pages 1029-1035, May.
  3. Boom, Anette, 2004. ""Download for Free" - When Do Providers of Digital Goods Offer Free Samples?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 70, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  7. Wilson, Robert, 1985. "Multi-dimensional signalling," Economics Letters, Elsevier, vol. 19(1), pages 17-21.
  8. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009. "Business Models for Media Firms: Does Competition Matter for how they Raise Revenue?," CESifo Working Paper Series 2713, CESifo Group Munich.
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  10. Anderson, Simon P & Renault, Régis, 2005. "Advertising Content," CEPR Discussion Papers 5064, C.E.P.R. Discussion Papers.
  11. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-43, Summer.
  12. Tülin Erdem & Michael P. Keane & Baohong Sun, 2008. "A Dynamic Model of Brand Choice When Price and Advertising Signal Product Quality," Marketing Science, INFORMS, vol. 27(6), pages 1111-1125, 11-12.
  13. Cheng, Hsing Kenneth & Tang, Qian Candy, 2010. "Free trial or no free trial: Optimal software product design with network effects," European Journal of Operational Research, Elsevier, vol. 205(2), pages 437-447, September.
  14. 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.
  15. David Godes & Elie Ofek & Miklos Sarvary, 2009. "Content vs. Advertising: The Impact of Competition on Media Firm Strategy," Marketing Science, INFORMS, vol. 28(1), pages 20-35, 01-02.
  16. Kapil Bawa & Robert Shoemaker, 2004. "The Effects of Free Sample Promotions on Incremental Brand Sales," Marketing Science, INFORMS, vol. 23(3), pages 345-363, November.
  17. Monic Sun, 2011. "Disclosing Multiple Product Attributes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 195-224, 03.
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