Designing Free Software Samples: A Game Theoretic Approach

40 Pages Posted: 5 Jan 2004  

Christophe Faugère

Kedge Business School Bordeaux

Giri Kumar Tayi

SUNY at Albany - School of Business

Date Written: September 2006

Abstract

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.

Keywords: Vertical differentiation, monopolist, free sample, software, durable goods, sales cannibalization, optimal design

JEL Classification: C72

Suggested Citation

Faugère, Christophe and Tayi, Giri Kumar, Designing Free Software Samples: A Game Theoretic Approach (September 2006). Available at SSRN: https://ssrn.com/abstract=465901 or http://dx.doi.org/10.2139/ssrn.465901

Christophe Faugère (Contact Author)

Kedge Business School Bordeaux ( email )

680 Cours de la Liberation
Bordeaux, Aquitaine 33405
France

Giri Kumar Tayi

SUNY at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States
518-442-4947 (Phone)

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