Deng, Yiting;
Lambrecht, Anja;
Liu, Yongdong;
(2022)
Spillover Effects and Freemium Strategy in the Mobile App Market.
Management Science
10.1287/mnsc.2022.4619.
(In press).
Preview |
PDF
Deng, Lambrecht and Liu forthcoming.pdf - Accepted Version Download (590kB) | Preview |
Abstract
“Freemium,” whereby a basic service level is provided free of charge but consumers are charged for more advanced features, has become a popular business model for firms selling digital goods. However, it is not clear whether the launch of a free version helps or hurts the demand of an existing paid version. The free version may allow consumers to sample the product before making a purchase decision and subsequently increase demand of the paid version, but it may also cannibalize demand of the paid version. We use a comprehensive data set on game apps from Apple’s App Store that tracks the launch of both the paid and the free versions of individual apps on a daily level to identify whether a freemium strategy stimulates or hurts demand of an existing paid version. We estimate the spillover effects between the free version and the paid version of the same app under a difference-in-difference framework, relying on the fact that app developers cannot predict the exact launch date of the free version of the app due to Apple’s review and approval of apps prior to release and accounting for app-level product heterogeneity. We find that the launch of a free version increases demand of the paid version of the same app. Under the main specification, if the daily number of ratings before the free version’s launch is at the mean, then all else equal, the launch of the free version leads to an 8.9% increase in the daily number of ratings. We then describe multiple robustness checks. Finally, we present evidence that the results are driven by consumers sampling the free version as well as enhanced app discovery and explore the relative importance of the two mechanisms. This paper was accepted by Matthew Shum, marketing. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2022.4619 .
| Type: | Article |
|---|---|
| Title: | Spillover Effects and Freemium Strategy in the Mobile App Market |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1287/mnsc.2022.4619 |
| Publisher version: | https://doi.org/10.1287/mnsc.2022.4619 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher's terms and conditions. |
| Keywords: | Freemium, mobile app, spillover effect, cannibalization, sampling, discovery |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10161666 |
Archive Staff Only
 |
View Item |
