The Profitability of the Freemium Pricing Strategy for Private Monopolies in Two-Sided Markets

Freemium is a dominant pricing strategy in the software industry that especially seems emerging in two-sided markets. Existing models in the literature have already shown why firms have an incentive to practice the free-pricing strategy in two-sided markets. In this paper models are presented for both the free-pricing strategy and the freemium pricing strategy. By comparing the two models the paper shows that a high network externality between the two market sides contributes to the profitability of the freemium pricing strategy for a private monopoly platform.