Abstract

In the past, shareware has been mainly used to market small and simple software, the developers of which could not afford to distribute their products through a physical retail channel. Shareware was often distributed through complimentary floppy or CD disks attached to PC or games magazines. However, with increased network speed, it has become viable for digital files, even large ones, to be distributed over the Internet. The Internet channel has opened up new opportunities for developers, small or large, to distribute their products as shareware to reach consumers directly. Indeed, in recent years, we begin to see big firms, including Microsoft, Adobe, and Google, distributing their products as shareware. We find that shareware is an increasingly widespread marketing strategy for selling software products via the Web. Because the emergence of shareware has not been driven by economic concerns, there is limited analytical research on shareware. However, as shareware gains in popularity as a strategy to reduce consumers’ uncertainty about new software products, there is a need for deeper understanding of the economic implications of its use. This paper analyzes the interrelationships among key issues that are central to the software industry, including uncertainty, piracy, shareware quality, and full version price. We show that customers’ aversion to the uncertainty of software quality tends to increase shareware quality while piracy tends to decrease it. Counter intuitively, the perceived quality of the full version software or the trust toward the software developer does not affect the full version price and the profit of the firm when piracy is prevalent.

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