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Trial plans as a means of price discrimination

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  • Salamat, Ramtin

Abstract

When consumers differ in both their valuations and their likelihood of being well-matched with the product, the seller can benefit from offering trial plans as persuasion instruments to the extent of full surplus extraction. In the presence of picky consumers, those skeptical about product quality but willing to pay a premium if the product meets their standards, offering a menu of trials allows the seller to screen consumers and extract more surplus. If consumers with a higher valuation for a well matched product are more skeptical and consumers' expected valuation is an increasing and concave function of their probability of being well-matched, the seller can extract the full surplus by offering a menu of trial plans. This rationale for trials differs from others in the literature which are based on risk aversion or high marginal cost.

Suggested Citation

  • Salamat, Ramtin, 2025. "Trial plans as a means of price discrimination," Games and Economic Behavior, Elsevier, vol. 153(C), pages 679-701.
    • Handle: RePEc:eee:gamebe:v:153:y:2025:i:c:p:679-701
    DOI: 10.1016/j.geb.2025.08.010
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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