We investigate a startup firm’s incentives to offer free trial in Monopoly and Duopoly settings, and explore how free trial affects firms’ pricing decisions. We find customers’ prior belief plays a key role and the firm offers free trial only when customers’ prior belief is less than a threshold. Under competition, we show that free trial may induce intense price war. The firm is more likely to offer free trial when the competitor’s product quality is high. We also compare the effects of advertisement and free trial, finding that free trial is preferred when advertising is inefficient.
|Number of pages||28|
|Journal||Transportation Research Part E: Logistics and Transportation Review|
|Early online date||18 Apr 2019|
|Publication status||Published - Jun 2019|
Bibliographical noteBaozhuang Niu is supported by NSFC Excellent Young Scientists Fund (No. 71822202), NSFC (No. 71571194), Chang Jiang Scholars Program (Niu Baozhuang 2017), GDUPS (Niu Baozhuang 2017). Weixin Shang is supported by the Internal Research Grant of Lingnan University via Project DR17A3.
- Customer perception
- Duopoly competition
- Experience products
- Pricing with free trial
- Product quality
NIU, B., YUE, H., LUO, H., & SHANG, W. (2019). Pricing for newly-launched experience products: Free trial or not? Transportation Research Part E: Logistics and Transportation Review, 126, 149-176. https://doi.org/10.1016/j.tre.2019.04.001