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Competing with Superstars in the Mobile App Market

Author

Listed:
  • Daniel Ershov

    (Toulouse School of Economics, 21 Allee de Brienne, 31000 Toulouse, France)

Abstract

Firms considering to enter into online markets face significant demand uncertainty and consumer search costs, with consumers most likely finding previously successful products in the market. This leads to a trade-off for potential entrants. Consider the appearance of a new very popular product (“superstar") in a particular niche. The popular product resolves demand uncertainty but also increases search costs for new entrants relative to the superstar. The interaction between these two forces could result in too much entry by low quality products, or not enough entry. I empirically examine these effects using 2012- 2013 data on mobile games in the Android mobile app store. I show that there are large increases in entry in niches where the superstar appears, unless they were already popular niches (“discovered"). I also show that the superstar reduces the quality of the new entrants and intensifies price competition.

Suggested Citation

  • Daniel Ershov, 2018. "Competing with Superstars in the Mobile App Market," Working Papers 18-02, NET Institute.
    • Handle: RePEc:net:wpaper:1802
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    References listed on IDEAS

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    Cited by:

    1. Han Yuan, 2020. "Competing for Time: A Study of Mobile Applications," 2020 Papers pyu309, Job Market Papers.
    2. Natalia Fabra & Juan-Pablo Montero, 2022. "Product Lines and Price Discrimination in Markets with Information Frictions," Management Science, INFORMS, vol. 68(2), pages 981-1001, February.

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    Keywords

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    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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