14:15 - 15:45
The Hidden Costs of Fairness in Platform Markets
Multisided platforms are ubiquitous in our economy. While their success crucially relies on indirect network effects, it remains an open question how to strengthen these effects by expanding the breadth of platform transactions without undermining their quality.
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Annamaria Conti is an Associate Professor at IE Business School and co-editor of the Journal of Economics & Management Strategy. Previously, she was an Associate Professor at HEC Lausanne and an Assistant Professor of Strategic Management at the Scheller College of Business, Georgia Institute of Technology, Atlanta. Annamaria conducts research in the fields of entrepreneurship and innovation. In these fields, she examines the organization and performance determinants of technology startups as well as venture capitalists’ investment strategies.
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Multisided platforms are ubiquitous in our economy. While their success crucially relies on indirect network effects, it remains an open question how to strengthen these effects by expanding the breadth of platform transactions without undermining their quality. This paper highlights the role of royalties as ex-ante screening filters as when royalty rates are high, they incentivize developers of low-quality products to self-select out of the platforms. We leverage the quasi-random announcements made by Apple and Google between November 2020 and March 2021, declaring their intention to reduce the royalty rate applied to small app developers from 30% to 15%. We analyze the implications of these reforms using a difference-in-differences approach, finding a substantial increase in small developers' likelihood of releasing new apps on iOS and Android after the announcements. These apps are disproportionately in the lowest quartile of the number of upvotes and ratings received, and downloads, indicating a surge in low-quality apps after the announcements. This surge is not paralleled by a comparable increase in the share of highest-quality apps. Accordantly, we detect a decline in small developers' likelihood of launching venture-backed apps. Consistent with lower royalty rates exacerbating asymmetric information, we show that post-announcements, observed app quality matters more for obtaining funding and the marginal value of experienced users’ certification increases. Similarly, we detect an increase in the marginal value of developers' app store optimization investments. Read more ...
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