Estimating Demand for Mobile Applications in the New Economy

Management Science, Forthcoming

37 Pages Posted: 12 Jan 2014 Last revised: 23 Aug 2014

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business

Sang Pil Han

Arizona State University, W.P.Carey School of Business

Date Written: January 1, 2014

Abstract

In 2013, the global mobile app market was estimated at over US $50 billion and is expected to grow to $150 billion in the next 2 years. In this paper, we build a structural econometric model to quantify the vibrant platform competition between mobile (smartphone and tablet) apps on the Apple iOS and Google Android platforms and estimate consumer preferences towards different mobile app characteristics. We find that app demand increases with the in-app purchase option wherein a user can complete transactions within the app. On the contrary, app demand decreases with the in-app advertisement option where consumers are shown ads while they are engaging with the app. The direct effect on app revenue from the inclusion of an in-app purchase and in-app advertisement option is equivalent to offering a 28 percent price discount and increasing price by 8 percent, respectively. We also find that a price discount strategy results in a greater increase of app demand in Google Play compared to Apple App Store, and app developers can maximize their revenue by providing 50% discount on their paid apps. Using the estimated demand function, we find that mobile apps have enhanced consumer surplus by approximately $33.6 billion annually in the US, and discuss various implications for mobile marketing analytics, app pricing and app design strategies.

Keywords: mobile apps, demand and supply estimation, Apple, Google Play, app characteristics, in-app purchases, mobile analytics

Suggested Citation

Ghose, Anindya and Han, Sang Pil, Estimating Demand for Mobile Applications in the New Economy (January 1, 2014). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2378007

Anindya Ghose (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Sang Pil Han

Arizona State University, W.P.Carey School of Business ( email )

Tempe, AZ 85287-3706
United States
480-965-8603 (Phone)

HOME PAGE: http://https://apps.wpcarey.asu.edu/directory/people/profile.cfm?person=2255149

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