Competing with Superstars in the Mobile App Market
NET Institute Working Paper 18-02.
Abstract
Firms in many markets face demand uncertainty when deciding where to enter new products. The appearance of a popular competitor, or superstar, resolves part of this demand uncertainty and can expand demand, but it also intensifies competition. Using Google Play Store mobile game data and the surprise emergence of superstar products for identification, I show that entry increases in niches where a superstar appears unless those niches were already popular. New entrants reduce quality and price competition intensifies; incumbents respond by investing in higher quality.
Main Finding
Superstar entry increases entry in previously less-popular niches, reduces new-entrant quality, intensifies price competition, and induces incumbents to raise quality.
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