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App Platform Model

Microeconomics seminar

Add to calendar 2024-06-11 14:00 2024-06-11 15:15 Europe/Rome App Platform Model Conference Room Villa La Fonte YYYY-MM-DD


11 June 2024

14:00 - 15:15 CEST


Conference Room

Villa La Fonte

In this seminar, Simon Anderson (University of Virginia) will present the paper 'App Platform Model'.

We model a software application platform selling devices to consumers and collecting percentage commission over in-app purchases. Apps are complements, differ in their quality and consumers differ in their unit benefit from app quality. App developers decide whether to develop an app (incurring a fixed cost) and choose their in-app purchase price. Consumers decide to buy a device and how much to purchase in each app. We show that the platform's pricing results in insufficient consumer engagement and app entry, compared to levels that would optimise consumer surplus or app surplus. A cap regulation on commissions harms consumers and benefits app. Allowing apps to use a third-party payment channel effectively mirrors a zero-commission cap. If the platform introduces its own apps replacing some high-quality (infra-marginal) apps, it sets a lower commission and higher device fee resulting in lower consumer participation, more app entry at the margin and higher profits for the remaining apps, whereas replaced apps lose. We also study the implications of different app financing models (in-app purchases, subscription-based, ad-financed).

Co-author: Özlem Bedre-Defolie, European University Institute

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