Non-Monotonic Effects of Financial Incentives on Mobile App Engagement

Abstract

Previous studies show that financial incentives could influence consumer behavior, but they shed little light on how this influence varies with the change in levels of incentives. We argue that the relationship between financial incentives and consumer behavior may be non-monotonic in the context of the mobile app marketplace. Building on the theory of sorting and reciprocity effects, we hypothesize a U-shaped relationship between financial incentives for app downloads and consumer app engagement. We evaluate our hypothesis on a large-scale natural field experiment wherein consumers were randomly assigned financial rewards for downloading a newly-launched mobile app. We find support for our hypothesis on the detailed usage behavior of 129,424 app downloaders for the 16-week study period. We further provide empirical evidence for the existence of sorting and reciprocity effects in our data. Our study is the first to show the non-monotonic effects of financial incentives on consumers’ engagement in the digital marketplace. Our findings offer several actionable recommendations for online marketers, app publishers, and platform owners.