The Impact of Visibility on Demand in the Market for Mobile Apps

Abstract

The growth of mobile applications on smartphones and tablets ("apps") ranks as one of the most astonishing technological developments of the recent past. The marketplaces for these mobile apps (i.e., the Apple iOS App Store and Google Play) are a significant disruptive change in the way content is created and consumed. In this paper, taking a data-driven approach, we study the impact visibility in these marketplaces has on demand that apps obtain. The market platforms feature "top-ranked" charts that list apps by number of downloads. A shift to a high position in these charts is typically followed by a remarkable boost in demand. We call the effect of top-rank position on future sales an *indirect effect.* Our main contribution is to estimate the magnitude of this indirect effect. We develop a novel econometric methodology that allows us to deal with the significant endogeneity in the problem: ranks are determined by downloads, but also affect downloads. Our results show that the indirect effect is statistically significant and substantial; for example, we find that moving from position 20 to position 1 can nearly double the demand for an app.

Keywords: Mobile apps, market design, search ranking

JEL Classification: D04