Competing with Superstars in the Mobile App Market

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

No 18-02, Working Papers from NET Institute

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.

Keywords: mobile apps; entry; superstars; demand discovery; search (search for similar items in EconPapers)
JEL-codes: D22 L11 L86 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-09
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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