The role of the distribution platform in price formation of paid apps

Abstract

In this paper we study the role of the distribution platform as an important determinant of price of paid apps. We also examine how the distribution platform influences the price implications of important developers' app-level decisions. To these purposes, we construct a hierarchical model of price formation by using an ad-hoc panel dataset consisting of top paid apps from the two major app stores, namely Apple's App Store and Google Play. Our findings show that prices of paid apps strongly depend on the platform where the apps are marketed. Specifically, the App Store is associated with lower prices for paid apps than Google Play. We find evidence that this is because the impact of cross-store differences in developer competition prevails over the impact of cross-store differences in average consumer willingness to pay. We also find that the price premiums as a return to trialability are more likely to emerge in Google Play than in the App Store, and that developers are more likely to adopt a penetration price policy in Google Play, thus implying an influence of the distribution platform on the price implications of these app-level decisions. Finally, our evidence does not confirm the argument that a more marked price reduction for paid apps embedding ads or generating revenues from other interested third parties should be observed in Google Play.