Analysis on the in-app advertising contract of a mobile platform and two competitive app developers

Abstract

Moblie platform is an online store for distributing mobile apps and designed to connect mobile app developers and users. Mobile platform launches in-app advertisement for their advertisers to monetize the mobile app market. Unlike traditional advertising, the profitability of in-app advertising is not only affected by the decision of the platform, but also by the decision of the app developer, and they will share the advertising revenue. We develop an app advertising revenue sharing model with two competitive app developers and one mobile platform. The mobile platform is the leader, and the two app developers are the follower. Our analysis shows that the two app developers may choose to publish or not publish adds. If publishing, app developers may choose to offer a free app with in-app ads, or choose to offer a paid app with in-app ads. These results can be categorized into seven ranges for the platform's given revenue share of advertisement. In addition, we find the platform's optimal choice of ad revenue share is affected by the quality of advertisement. With the improvement of advertising quality, the revenue sharing ratio will first remain unchanged, then decrease, and finally increase. This is caused by the platform's subsidization strategy for app developers.