Platform Design and Innovation Incentives: Evidence from the Product Ratings System on Apple's App Store

Abstract

A lack of platform-level competition among digital marketplaces can result in socially inefficient platform design and meaningful welfare losses, even independent of actively anticompetitive behavior. To illustrate the first-order effects platform design can have on competitive outcomes, I investigate how the longstanding design of the product ratings system on Apple's App Store affected innovative behavior by platform participants. I leverage an exogenous change in this system to show that for nearly a decade, the design of the App Store's product ratings system led to less frequent product updating by high-quality products. I provide suggestive evidence that this policy resulted in lost, as opposed to simply delayed, innovation.

The Impact of Apple's App Tracking Transparency Framework on the App Ecosystem

“…Given this, looking at update frequency can be informative about the level of effort developers are engaged in on a platform, which encompasses the rate of quality improvements as well as whether a product is being actively maintained. Moreover, Leyden (2023) has previously shown that developers' updating behavior is sensitive to the design and policies of a platform. We present results for updating frequency in column (3) of Table 2.…”

Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets

“…Finally, this paper is also related to the emerging literature on mobile applications. Examples include Ghose and Han (2014), Bresnahan, Orsini and Yin (2014), Mendelson and Moon (2016), Mendelson and Moon (2018), Huang (2018), Leyden (2019), Ershov (2020), Li, Bresnahan and Yin (2016), Wang, Li and Singh (2018), Leyden (2021), Allon et al (2021), Singh, Hosanagar andNevo (2021) and Janssen et al (2021). In terms of methodology, this paper is most closely related to Leyden (2019) which also develops an empirical model to rationalize app developers' upgrading decisions for a different research question.…”

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“…Platforms can also affect innovation incentives. For example,Leyden (2021) shows that ratings reset on Apple's app store affect the…”

“…1111Platforms can also affect innovation incentives. For example, Leyden (2021) shows that ratings reset on Apple's app store affect the frequency and size of developers' app updates. Related, Wu and Zhu (2022) find that heightened competition induced books written under revenue‐sharing arrangements at a Chinese platform to become more novel.…”