Merger Analysis in the App Economy: An Empirical Model of Ad-Sponsored Media

Abstract

Mobile apps are ad-sponsored media with mixed business models of monetization, for which traditional tools for merger analysis that use price variation do not work. This paper proposes a model of mobile apps, in which consumers decide downloads and usage time, and apps compete in price and advertising intensity. We unify prices and advertisements as the sources of a consumer's cost for using the app to generalize the existing tools. We estimate the model using data from Google Play in Japan from 2015 to 2017. We show that we can conduct an extended version of the hypothetical monopolist test, evaluation of upward "cost" pressure, and merger simulation. We also analyze the vertical relation with Google Play. We demonstrate that a reduction of the fee imposed by Google Play can increase the price and hurt consumers for non-game apps, highlighting the importance of considering two-sidedness and mixed business models.

Keywords: Merger simulation, market definition, SSNIP, antitrust policy, ad-sponsored media, mixed business models, platform transaction fee, app economy

JEL Classification: L11, L13, L41, L86, M13, M21.