Li Tian
ABSTRACT
A company sells a new product online through two stages. In the first stage, free trials are offered to consumers; in the second stage, products are sold at the regular selling price. Consumers are uncertain about the value of the product, while online reviews can help them reveal the product value. Consumers who have received the free trials are required to provide online reviews of the products which can help future consumers better understand the uncertain product value. The greater the number of consumer reviews, the more the future consumers' purchasing decisions rely on consumer reviews. The company offers free trials to induce consumer online reviews and to increase the expected future sales. However, offering too many free trials can exert significant cost for the company. We characterize the optimal number of free trials the company should offer in the first stage, as well as the optimal selling price in the second stage. We find that the company offers free trials when the product cost is below a threshold, and does not offer free trials otherwise. If the uncertainty of product value becomes larger, the firm should provide more free trials and its profit becomes lower.
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Index Terms
- Offering Free Trials with Consumer Online Reviews
Recommendations
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