Title:
Optimal Restrictions for Shareware Use - Time or Functionality Based
Abstract: We use a microeconomic modeling approach to analyze
the shareware marketing strategy in a monopolistic setting. We analyze and
compare two types of shareware use restriction: (1) time limitation and (2)
functionality limitation. Our results show that if time limitation is used,
the firm should not disable any full version capabilities. In the absence
of network externalities, time-limited shareware is superior to functionality-limited
shareware as a marketing tool. Beyond a certain level of network externalities,
however, functionality limitation becomes more favorable. Overall, regardless
of the type of use restriction, network externalities tend to increase the
firm’s profit. Counter-intuitively, we show that network externalities allow
the firm to increase the full version price at the expense of the size of
the customer base in the early stages of introducing the software to the
market.