Economic Value Creation in Mobile Applications

NBER volume on Science and Innovation Policy, Forthcoming

Stanford University Graduate School of Business Research Paper No. 14-08

38 Pages Posted: 6 Mar 2014 Last revised: 14 Mar 2014

Timothy Bresnahan

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jason P. Davis

INSEAD

Pai-Ling Yin

Marshall School of Business, University of Southern California

Date Written: March 2, 2014

Abstract

New mobile development platforms have created an enormous opportunity for applications innovation by lowering the costs of R&D and attracting the largest body of potential app demanders ever assembled. This has created an explosion of app suppliers, numerous and diverse. In this early stage of discovering how this new industry will create economic value, such a wide variety of value-creation experiments is potentially very valuable, a wide variety of market institutions have been created to support those experiments. However, as we document in this paper, the sheer volume of app product entry has created problems for marketing and commercialization, most importantly the challenges of matching consumers to products. The high cost of product matching particularly impacts entrepreneurial app developers. A number of institutions and firm strategies have emerged in response to the matching problem; while these ameliorate the problem at the firm level, many of them worsen it at the market level. We conclude by considering how this situation has impacted the industry’s task of discovering economic value and choosing among different app and platform features to make its ultimate contribution to economic growth, and ask how this pattern of technical success and commercialization struggles is different from 20th century predecessors.

Keywords: iPhone, Mobile Applications, Google, Innovation, Entrepreneurship

Suggested Citation

Bresnahan, Timothy and Davis, Jason P. and Yin, Pai-Ling, Economic Value Creation in Mobile Applications (March 2, 2014). NBER volume on Science and Innovation Policy, Forthcoming; Stanford University Graduate School of Business Research Paper No. 14-08. Available at SSRN: https://ssrn.com/abstract=2403601 or http://dx.doi.org/10.2139/ssrn.2403601

Timothy F. Bresnahan

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
United States
650-725-5702 (Fax)

Stanford Graduate School of Business ( email )

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Stanford, CA 94305-5015
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Jason P. Davis (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore
Singapore

Pai-Ling Yin

Marshall School of Business, University of Southern California ( email )

United States

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