Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market

Naixin Zhu

Papers from arXiv.org

Abstract: In my dissertation, I will analyze how the product market position of a mobile app affects its pricing strategies, which in turn impacts an app's monetization process. Using natural language processing and k-mean clustering on apps' text descriptions, I created a new variable that measures the distinctiveness of an app as compared to its peers. I created four pricing variables, price, cumulative installs, and indicators of whether an app contains in-app ads and purchases. I found that the effect differs for successful apps and less successful apps. I measure the success here using cumulative installs and the firms that developed the apps. Based on third-party rankings and the shape of the distribution of installs, I set two thresholds and divided apps into market-leading and market-follower apps. The market-leading sub-sample consists of apps with high cumulative installs or developed by prestigious firms, and the market-follower sub-sample consists of the rest of the apps. I found that the impact of being niche is smaller in the market-leading apps because of their relatively higher heterogeneity. In addition, being niche also impact utility apps differently from hedonic apps or apps with two-sided market characteristics. For the special gaming category, being niche has some effect but is smaller than in the market follower sub-sample. My research provides novel empirical evidence of digital products to various strands of theoretical research, including the optimal distinctiveness theory, product differentiation, price discrimination in two or multi-sided markets, and consumer psychology.

Date: 2023-04
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