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Variety-Based Congestion in Online Markets: Evidence from Mobile Apps

Daniel Ershov. 2024. American Economic Journal: Microeconomics, 16(2), 180-203.

Abstract

In many online markets, consumers spend time and effort browsing through products. The addition of new products can make other products less visible, creating congestion externalities. Using Android app store data and a redesign of part of the store, I show that more apps directly reduce per-app usage and downloads. The natural experiment also increases long-run entry, but a structural demand model that accounts for congestion externalities suggests that 40% of consumer variety welfare gains are lost from higher congestion.

Main Finding

More app variety increases entry but reduces per-app usage and downloads; accounting for congestion implies that 40% of consumer variety welfare gains are lost.

Policy Relevance

Platform design affects the welfare value of variety because search and discovery frictions can turn entry into congestion.

Notes

• A previous draft circulated under the title Consumer Product Discovery Costs, Entry, Quality and Congestion in Online Markets.