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The impact of distribution channels on trial-version provision with a positive network effect

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  • Yi, Zelong
  • Li, Fan
  • Ma, Lijun

Abstract

Many software developers provide end-users with feature-limited free trials to facilitate the distribution of their commercial products. Some international developers also authorize local agents to resell software products to consumers. In this paper, we explore a software developer’s optimal trial strategy in the presence of an agent. Due to the involvement of the agent, the double marginalization effect may result in a higher price and a lower demand for the commercial software. We find that, if the network effect is strong enough, the developer will release a trial version and attract trial users to secure greater positive externality, which is consistent with the case without an agent involved. However, if the network effect is weak, the developer may still release a trial version to the public, which sharply contrasts the case without an agent involved. A trial is offered in a bid to countervail the negative double marginalization effect. We also extend this work by endogenizing the trial-version quality, and examining the differentiation induced by trial offer decisions made by different firms in the supply chain. Furthermore, we investigate the effects induced by consumers’ differentiated costs of using the free trial and commercial versions.

Suggested Citation

  • Yi, Zelong & Li, Fan & Ma, Lijun, 2019. "The impact of distribution channels on trial-version provision with a positive network effect," Omega, Elsevier, vol. 85(C), pages 115-133.
    • Handle: RePEc:eee:jomega:v:85:y:2019:i:c:p:115-133
    DOI: 10.1016/j.omega.2018.06.002
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