The Fate of the App: Economic Implications of Updating under Reputation Resetting

Abstract

Online reviews on digital platforms are essential in building reputation and mitigating information asymmetry between buyers and sellers. Existing reviews, however, become less informative for products whose attributes frequently change over time. To cope with this challenge, digital platforms have explored reputation update mechanisms that adequately reflect this change. One distinctive mechanism in the context of apps is where reputation, and thus the underlying review history (including volume and valence), is reset with the release of a new app update. Intuitively, apps with low prior reputation are expected to benefit from updating while apps with high prior reputation may suffer. At the same time, apps face the market pressure to get frequently updated. This setup makes the developer’s update decision a double-edged one with updating turning into a strategic reputation management instrument. Additionally, and while the updating decision is typically up to the developer, this decision can also be driven by the hosting platform updating its own technology infrastructure. Exploiting an instrumental variable approach on an App Store panel dataset, we study app demand under reputation resetting driven either by the platform or the developer. We find that when reputation resetting is platform-driven, apps with low prior reputation enjoy a sharp increase in demand while those with high prior reputation experience a sharp decline in demand. We also find a positive association between developer-driven updates and app performance for both high- and low-reputation apps. These results inform platforms and developers about the tension between operational stability and loss of reputation.