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

Baozhuang NIU; Haoran YUE; Huajiang LUO; Weixin SHANG

doi:10.1016/j.tre.2019.04.001

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

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

^*Corresponding author for this work

Department of Computing and Decision Sciences

Research output: Journal Publications › Journal Article (refereed) › peer-review

26 Citations (Scopus)

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 language	English
Pages (from-to)	149-176
Number of pages	28
Journal	Transportation Research Part E: Logistics and Transportation Review
Volume	126
Early online date	18 Apr 2019
DOIs	https://doi.org/10.1016/j.tre.2019.04.001
Publication status	Published - Jun 2019

Funding

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

Access to Document

10.1016/j.tre.2019.04.001

Cite this

@article{578d724e37d649c7933274be49a1e0a0,

title = "Pricing for newly-launched experience products: Free trial or not?",

abstract = "We investigate a startup firm{\textquoteright}s incentives to offer free trial in Monopoly and Duopoly settings, and explore how free trial affects firms{\textquoteright} pricing decisions. We find customers{\textquoteright} prior belief plays a key role and the firm offers free trial only when customers{\textquoteright} 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{\textquoteright}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.",

keywords = "Customer perception, Duopoly competition, Experience products, Pricing with free trial, Product quality",

author = "Baozhuang NIU and Haoran YUE and Huajiang LUO and Weixin SHANG",

year = "2019",

month = jun,

doi = "10.1016/j.tre.2019.04.001",

language = "English",

volume = "126",

pages = "149--176",

journal = "Transportation Research Part E: Logistics and Transportation Review",