Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market

TL;DR

This dissertation analyzes how a mobile app's market position influences its pricing and monetization strategies, revealing that success level and app type significantly affect the impact of niche positioning.

Contribution

It introduces a novel variable measuring app distinctiveness using NLP and clustering, and empirically examines how market position moderates pricing effects in mobile apps.

Findings

Market-leading apps are less affected by niche positioning due to higher heterogeneity.

Niche effects vary between utility, hedonic, and gaming apps.

App success and type influence the impact of differentiation on monetization.

Abstract

In my dissertation, I will analyze how the product market position of a mobile app affects its pricing strategies, which in turn impacts an app's monetization process. Using natural language processing and k-mean clustering on apps' text descriptions, I created a new variable that measures the distinctiveness of an app as compared to its peers. I created four pricing variables, price, cumulative installs, and indicators of whether an app contains in-app ads and purchases. I found that the effect differs for successful apps and less successful apps. I measure the success here using cumulative installs and the firms that developed the apps. Based on third-party rankings and the shape of the distribution of installs, I set two thresholds and divided apps into market-leading and market-follower apps. The market-leading sub-sample consists of apps with high cumulative installs or developed by prestigious firms, and the market-follower sub-sample consists of the rest of the apps. I found that the impact of being niche is smaller in the market-leading apps because of their relatively higher heterogeneity. In addition, being niche also impact utility apps differently from hedonic apps or apps with two-sided market characteristics. For the special gaming category, being niche has some effect but is smaller than in the market follower sub-sample. My research provides novel empirical evidence of digital products to various strands of theoretical research, including the optimal distinctiveness theory, product differentiation, price discrimination in two or multi-sided markets, and consumer psychology.