Pricing for newly-launched experience products: Free trial or not?

Baozhuang NIU, Haoran YUE, Huajiang LUO*, Weixin SHANG

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations

Abstract

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.
Original languageEnglish
Pages (from-to)149-176
Number of pages28
JournalTransportation Research Part E: Logistics and Transportation Review
Volume126
Early online date18 Apr 2019
DOIs
Publication statusPublished - Jun 2019

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Marketing
pricing
Costs
experience
firm
customer
Pricing
monopoly
incentive

Bibliographical note

Baozhuang 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.

Keywords

  • Customer perception
  • Duopoly competition
  • Experience products
  • Pricing with free trial
  • Product quality

Cite this

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title = "Pricing for newly-launched experience products: Free trial or not?",
abstract = "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.",
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author = "Baozhuang NIU and Haoran YUE and Huajiang LUO and Weixin SHANG",
note = "Baozhuang 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.",
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Pricing for newly-launched experience products: Free trial or not? / NIU, Baozhuang; YUE, Haoran; LUO, Huajiang; SHANG, Weixin.

In: Transportation Research Part E: Logistics and Transportation Review, Vol. 126, 06.2019, p. 149-176.

Research output: Journal PublicationsJournal Article (refereed)

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AU - NIU, Baozhuang

AU - YUE, Haoran

AU - LUO, Huajiang

AU - SHANG, Weixin

N1 - Baozhuang 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.

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AB - 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.

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