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Entry-deterrent freemium
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DOI：10.1016/j.econlet.2026.112961.png)
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Abstract
En 中文
Digital platforms frequently combine paid and free tiers. We show this can be an entry-deterrence tool: by improving the free tier, an incumbent compresses the paid demand available to a potential entrant. Higher free quality (i) cannibalizes paid demand and (ii) lowers the paid price, reducing the incumbent's profits and the profitability of entry. We characterize the regions of deterrence, accommodation, and automatic non-entry. Deterrence increases consumer surplus for intermediate entry cost and incumbent's marginal cost, as higher free quality benefits (i) users of the free tier and (ii) users of the paid tier through a lower price.
Keywords:
Freemium
Deterrence
Platforms