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Shareware competition: Selling an experience

Author

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  • Alexandre Gaudeul

    (University of East Anglia - Norwich)

Abstract

A firm may allow customers to learn the value of its product prior to buying it. This increases their willingness to pay, even though it also leads some not to buy. That strategy may also be used as a competitive tool to increase its product's attractiveness. This paper examines competition between ex-ante identical firms that sell horizontally differentiated and mutually exclusive experience goods. Customers incur set-up costs when buying a good, but those set-up costs are partly recoverable if they then decide to buy the product of a competitor. The main conclusion from this paper is that while a firm that gives information about its product makes higher profits than a competing firm that chooses not to do so, a firm may however choose that last option in order to avoid being in direct competition with a firm that is more open about the value of its product.

Suggested Citation

  • Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpga:0409008
    Note: Type of Document - pdf; pages: 46
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Experience goods; Transaction costs; Technical compatibility; Mechanism competition; information goods; sampling; switching costs;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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