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Designing Free Sofware for Marketing: A Game Theoretic Approach

Author

Listed:
  • Christophe Faugere

    (U at Albany)

  • Giri Kumar Tayi

    (U at Albany)

Abstract

We develop a vertical differentiation game-theoretic model that addresses the issue of designing free software samples for attaining follow-on sales. When software samples are akin to durable goods, a Monopolist giving a free sample away is likely to engender the cannibalization of sales of its commercial product. We analyze the optimal design of free software according to two characteristics: the trial time allotted for sampling (potentially renewable) and the proportion of features included in the sample. We find that these two dimensions play different roles whenever the software product is innovative or standard. We draw implications regarding the effectiveness of marketing strategies depending on the type of software product offered by a Monopolist.

Suggested Citation

  • Christophe Faugere & Giri Kumar Tayi, 2003. "Designing Free Sofware for Marketing: A Game Theoretic Approach," Game Theory and Information 0311003, EconWPA.
  • Handle: RePEc:wpa:wuwpga:0311003
    Note: Type of Document - pdf; prepared on Win2000; to print on HP LaserJet 4 plus; pages: 27; figures: Embedded
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    File URL: http://econwpa.repec.org/eps/game/papers/0311/0311003.pdf
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    References listed on IDEAS

    as
    1. Takeyama, Lisa N, 2002. "Strategic Vertical Differentiation and Durable Goods Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 43-56, March.
    2. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    4. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    5. Ernan Haruvy & Ashutosh Prasad, 2001. "Optimal freeware quality in the presence of network externalities: an evolutionary game theoretical approach," Journal of Evolutionary Economics, Springer, vol. 11(2), pages 231-248.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Vertical Differentiation; Monopolist; Free sample; Software; Durable goods; Sales Cannibalization; Optimal Design.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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