Co-creation of mobile app quality in a two-platform supply chain when platforms are asymmetric

Abstract

Mobile app development is a fast-growing industry, with Google Play and App Store being the two largest platforms, which provide app developers with a global audience. While each platform has its own captive app users, developers have the freedom to distribute their app via either a single platform or both. In the latter case, developers need to create two versions of the app, which differ in terms of their conformance quality (dictated by the platform), but share the same design quality (defined by the developer). We demonstrate that the cross-platform design quality results in a fee-allocation mechanism, according to which when one platform increases the developer's revenue share, it pushes the other platform to reduce the revenue share that it offers to the developer. The innovation of this work lies in considering the co-creation of app quality in a two-platform supply chain operating under a revenue-sharing contract. We analyze a stylized model with two asymmetric platforms, where the developer may be either profit-driven or market-expansion driven. In the former case, the inferior platform is at risk of losing the contract and therefore has to adjust it. Equilibrium analysis is provided for two market-power structures — balanced and imbalanced. Several counterintuitive properties of the equilibrium are obtained: (i) by becoming less efficient in the apps’ approval process, the platforms may coordinate the supply chain; (ii) an increase in the market size of a platform may degrade its profit; and (iii) a low price of the in-app product is not necessarily linked to a poor-quality app.