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.
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.