"Download for Free" - When Do Providers of Digital Goods Offer Free Samples?

Boom, Anette (September 2004): "Download for Free" - When Do Providers of Digital Goods Offer Free Samples? SFB/TR 15 Discussion Paper No. 70

Abstract

In a monopoly setting where consumers cannot observe the quality of the product we show that free samples which are of a lower quality than the marketed digital goods are used together with high prices as signals for a superior quality if the number of informed consumers is small and if the difference between the high and the low quality is not too small. Social welfare is higher, if the monopolist uses also free samples as signals, compared to a situation where he is restricted to pure price signalling. Both, the monopolist and consumers benefit from the additional signal.

• Item Type: Paper
• Keywords: Digital Goods, Free Samples, Multi-dimensional Signalling
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A1 - Allokationsmechanismen in Organisationen und Märkten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D21, D82, L15
• Language: English