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

Dominik Gutt (), Jürgen Neumann (), Wael Jabr () and Dennis Kundisch ()
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Dominik Gutt: Erasmus University Rotterdam
Jürgen Neumann: University of Paderborn
Wael Jabr: Pennsylvania State University
Dennis Kundisch: University of Paderborn

No 76, Working Papers Dissertations from Paderborn University, Faculty of Business Administration and Economics

Abstract: Online reviews on digital platforms are essential in building reputation. Existing reviews, however, become less informative for products whose attributes change over time. Digital platforms have explored reputation update mechanisms that adequately reflect this change. One such distinctive mechanism in the context of apps is that reputation, and thus the underlying review history, is reset with the release of a new app update. While this reputation resetting mechanism might have been intended to ensure that an app's reputation always reflects its current characteristics, it results in complete loss of app reputation irrespective of its prior quality. The implications of this loss of reputation on app market performance remains unknown. This is further complicated by settings where app updating and thus reputation resetting may be required by the hosting platform in compliance with its release of a new operating system. Exploiting an instrumental variables approach on a panel data set from the Apple App Store, we find that when reputation resetting is platform-driven, the effects are asymmetrical across reputation levels. Apps with low prior reputation enjoy a sharp increase in demand while those with high prior reputation experience a sharp decline in demand. Further, our results indicate that the effects on high prior reputation apps are longer-lived than those on low prior reputation apps. Interestingly, for developer-driven updates we find symmetrical effects. Hence, our results reveal that the reputation mechanism arguably designed to ensure accurate reputation has benefits but also substantial drawbacks, specifically for the platform's best performing apps.

Keywords: Online Reviews; App Store; Update; Reputation Mechanism; Digital Platform (search for similar items in EconPapers)
JEL-codes: D47 M15 M31 O32 (search for similar items in EconPapers)
Pages: 46
Date: 2020-05
New Economics Papers: this item is included in nep-pay
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