Duopoly Pricing Of Software Products Under Free Strategy

Adopting free strategy in competitive settings is pervasive in the software market.Providing free trial software product not only could decrease the consumers' uncertainty of software quality,but also could attract new consumer to employ the product through word of mouth effect,which is increasing the network value of software product.However,this action may lead software vendor to face the risk of commercial software demand cannibalization.Moreover,previous studies on free trial pay more attention to monopoly case rather than duopoly case.Aim at software product with positive network externalities,consider quality attribute and service attribute and extend Hotelling model to analyze the duopoly vendors' optimal pricing under free strategy.This paper examines the duopoly case in which one vendor adopts the limited-feature free trial strategy and the other employs the seeding strategy.By analyzing the trade-off between the benefit of network externalities and the risk of demand cannibalization,it drives the equilibrium prices and profits of two vendors,explores how the optimal prices and profits are affected by the quality and the service level of free trial version,the network intensity and the seeding ratio,and examine how to design the quality and service of limited-feature free trial software.This paper finds that the vendor adopting the limited-feature free trial strategy is profitable to provide free trial version of its commercial software with lower quality and better service,and the vendor which uses seeding strategy may seed more potential consumers to obtain more profit.It discovers the impact of the network intensity is negative on the profit of the vendor that adopts the limited-feature free strategy.This result is different from the previous literature on limited-feature free trial in monopoly case.Moreover,the vendor which employs seeding strategy prefers higher seeding ratio and stronger network intensity.