Designing Free Software Samples: A Game Theoretic Approach
Kedge Business School Bordeaux
Giri Kumar Tayi
SUNY at Albany - School of Business
We develop a vertical differentiation game-theoretic model that addresses the issue of designing free software samples (shareware) for attaining follow-on sales. When shareware can be reinstalled, cannibalization of sales of the commercial product may ensue. We analyze the optimal design of free software according to two characteristics: the evaluation period allotted for sampling (potentially renewable) and the proportion of features included in the sample. We introduce a new software classification scheme based on the characteristics of the sample that aid consumer learning. We find that the optimal combination of features and trial time greatly depends on the category of software within the classification scheme. Under alternative learning scenarios, we show that the monopolist may be better off not suppressing potential shareware reinstallation.
Number of Pages in PDF File: 40
Keywords: Vertical differentiation, monopolist, free sample, software, durable goods, sales cannibalization, optimal design
JEL Classification: C72
Date posted: January 5, 2004
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