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Does It Pay to Shroud In-App Purchase Prices?

Author

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  • Jeffrey D. Shulman

    (Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Xianjun Geng

    (A. B. Freeman School of Business, Tulane University, New Orleans, Louisiana 70118)

Abstract

Application (app) developers commonly sell their apps at relatively low prices and subsequently earn substantial revenue from in-app purchases. Although some consumers may do their research about in-app prices before deciding whether to buy the app, others only discover the in-app prices later in the purchase process. This paper presents an analytical model to examine the profit and welfare implications of hidden prices of the in-app purchases. This paper has three main contributions. First, it finds a profit-improvement effect of hidden prices under circumstances for which prior literature finds profit irrelevance. In this regard, the model identifies a new mechanism driving the profit-improvement result. Second, it finds when app developers can be made better off by platforms disclosing in-app purchase prices. Third, it shows how platform decisions intended to improve pricing transparency may actually diminish consumer welfare. We also consider a model variation whereby app developers can shroud in-app prices. The findings have implications for app developers considering hidden in-app purchases, as well as platforms such as Google, Apple, and Amazon, which can restrict this practice.

Suggested Citation

  • Jeffrey D. Shulman & Xianjun Geng, 2019. "Does It Pay to Shroud In-App Purchase Prices?," Information Systems Research, INFORMS, vol. 30(3), pages 856-871, September.
    • Handle: RePEc:inm:orisre:v:30:y:2019:i:3:p:856-871
    DOI: 10.1287/isre.2019.0835
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    References listed on IDEAS

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    5. Ye Shi & Layth C. Alwan & Srinivasan Raghunathan & Yugang Yu & Xiaohang Yue, 2021. "Mobile Consumer Scanning Technology: A Replacement for Interorganizational Information Systems for Demand Information Learning in Supply Chains?," Information Systems Research, INFORMS, vol. 32(4), pages 1431-1449, December.

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