Paying Incumbents and Customers to Enter an Industry: Buying Downloads

52 Pages Posted: 7 Sep 2016  

Xing Li

Peking University

Timothy Bresnahan

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

Pai-Ling Yin

Marshall School of Business, University of Southern California

Date Written: September 4, 2016

Abstract

Success breeds success in many mass market industries, as well known products gain further consumer acceptance because of their visibility. However, new products must struggle to gain consumer’s scarce attention and initiate that virtuous cycle. The newest mass market industry, mobile apps, has these features. Success among apps is highly concentrated, in part because the “top app lists” recommend apps based on past success as measured by downloads. Consequently, in order to introduce themselves to users, new app developers attempt to gain a position on the top app lists by “buying downloads,” i.e., paying a user to download the app onto her device. We build a model to rationalize this behavior, taking into account the impact of buying downloads on top list ranking and optimal investment in buying downloads. We leverage a private dataset from one platform for buying downloads to identify the return on this investment, as a test for the assumption of the model. $100 invested will improve the ranking by 2.2%. We provide some informal tests of the two empirical predictions of the model: (1) there are two humps in the diffusion pattern of the app, and (2) early rankings are less persistent than later rankings. We estimate an empirical analog of the model to show the relative importance of buying downloads and rich heterogeneity in the market. We simulate counterfactuals to evaluate the efficiency of top-ranking lists.

Suggested Citation

Li, Xing and Bresnahan, Timothy and Yin, Pai-Ling, Paying Incumbents and Customers to Enter an Industry: Buying Downloads (September 4, 2016). Available at SSRN: https://ssrn.com/abstract=2834564 or http://dx.doi.org/10.2139/ssrn.2834564

Xing Li (Contact Author)

Peking University ( email )

Peking University
Beijing, Beijing 100871
China

Timothy F. Bresnahan

Stanford University - Department of Economics ( email )

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

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pai-Ling Yin

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

United States

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