Below are some of my recent working papers. Comments and suggestions are welcome.
Masakazu Ishihara and Eitan Muller (2018), "Software Piracy and Outsourcing in Two-Sided Markets."
We examine the role of software piracy in digital platforms, where a platform provider makes a decision of how much software to produce in-house and how much to outsource from a third-party software provider. Using a vertical differentiation model, we first theoretically investigate the impact of software piracy on equilibrium pricing and profits of the platform and software providers, and software outsourcing decision by the platform. We find that the platform provider can benefit from piracy, and that an increase in piracy reduces in-house software production. We then provide empirical evidence for the external validity of our theoretical prediction on the outsourcing decision using data from the U.S. handheld videogame market between 2004 and 2012. This market is a classical two-sided market, dominated by two handheld platforms (Nintendo DS and Sony PlayStation Portable) and is known to have suffered from software piracy significantly. Our regression results show that the proportion of in-house software decreases in piracy, supporting our theoretical prediction.
Eyal Biyalogorsky, Amir Heiman and Eitan Muller (2018), "Branding and the Ravages of Time: The Effect of Time on the Brand Premiums of Automobiles."
As more durable goods offer higher proportions of intangible benefits, understanding how these benefits change over time is essential for developing successful marketing strategies. We shed light on this question by investigating how cars’ intangible benefits hold up over time in the used car market. We take advantage of the phenomenon of twin cars – different car models that are virtually the same from a structural standpoint but are sold under differing brand names – to disentangle the effects of physical wear-and-tear, which should impact both the premium car brand and the standard-priced brand similarly, from the effect of time depreciation, which should affect each brand differently. We use data on prices of new and used cars that include the car’s age; miles driven; its condition, and its status (premium vs. standard) for 21 twin car pairs, to estimate the deprecation in car values depending on condition and age. Our main result is that age depreciation of a premium car, which captures the decay in the intangible benefits, occurs much faster than that of a standard car, controlling for mileage driven, condition of the car, and initial price. This result demonstrates that the true cost of owning a premium car is not just its high initial price, but also the faster depreciation of its intangible value, as compared to the standard version of that same premium brand.
Gil Appel, Barak Libai and Eitan Muller (2018), "On the Monetary Impact of Fashion Design Piracy."
Whether to legally protect original fashion designs against piracy is an ongoing debate among legislators, industry groups, and legal academic circles, which has gained little exposure in the marketing literature. We combine data on the growth of fashion designs, price markups, and industry statistics to develop a formal analysis of the essential questions at the base of the debate. We distinguish between three effects: Acceleration, whereby the presence of a pirated design increases the awareness of the design; Substitution, which represents the loss of sales due to consumers who would have purchased the original design, yet instead buy the knockoff; and loss because of Overexposure of the design resulting from the design’s ubiquity. Using data-driven simulation analysis, we find that for the items analyzed (handbags and apparel), overexposure emerged as having a stronger negative effect (on average) on the original’s profitability than the positive effect of acceleration. Both effects are considerably larger than that of substitution. This result is of particular interest given that industry groups have consistently focused on the damage caused by substitution. We also show that the effect of a legally mandated postponement on the introduction of a knockoff is non-monotonic for short lag: A short time lag may not affect the original design’s NPV, and in fact may even damage it. For the ranges we analyzed, the positive effect of the protection period is observed primarily for time lags of over one year.
Gil Appel, Barak Libai, Eitan Muller and Ron Shachar (2018), "Retention and the Monetization of Apps."
Though free apps dominate mobile markets, firms struggle to monetize such products and make profits, relying on revenues from two sources: paying consumers, and paying advertisers. Which source is more attractive and when? In this paper, we present a framework that shed light on these issues and on additional questions relating to the monetization of mobile apps. When formulating such a model one needs to pay attention to three central empirical regularities about the retention of mobile apps. a) The process is inherently dynamic; b) consumers have some prior knowledge of their fit with the app, yet they remain uncertain about their exact match-utility until they are using it; and c) the match-utility of using the app in the lower in the second period than in the first. The resulting equilibrium in which user stickiness with the app plays a central role has a few insights on the monetization of apps. We find that in some cases it might be optimal for the firm to offer only one version of the app (i.e., free or paid). Specifically, when the drop in the match utility after the first period is low, it might be optimal to offer only the paid version. We discuss how this implication relates to hedonic products such as games, versus utilitarian products such as finance and business. Furthermore, we also demonstrate that in a dynamic setting, a firm can profit from offering a free version with ads even if advertisers are not paying for these ads.