Perpetual or Subscription: Incumbent sales strategy with strategic consumers and social learning

Abstract

This study explores the impact of social learning on sales strategies for incumbent firms facing new entrants in the digital software market. Consumers rely on peer reviews to assess product quality, making it difficult to evaluate new products. The study considers two pricing strategies: perpetual and subscription. Results suggest that monopolizing the market is not always beneficial for the incumbent. The best strategy depends on the strength of social learning effects, with a subscription strategy being more effective when social learning effects are strong, and a perpetual strategy being more effective when they are weak.