Presenter: Byoungmin Yu

Location: 368A Heady Hall

Title: Commission Fee Structure and Innovation in Digital Platforms

Abstract: This paper quantifies the welfare effects of regulating commission fees in digital platforms, focusing on third-party app developers’ innovation and pricing decisions. I employ a comprehensive dataset of music apps within the Apple iOS store in the United States from October 2018 to February 2024 to estimate app users’ demand and app developers’ cost parameters. The paper reveals key findings with three policy counterfactual simulations where I sequentially solve for optimal innovation and pricing decisions. First, a cap on commission fees promotes innovative efforts by third-party app developers and improves social welfare. Second, when the platform adds a unit fee scheme under the fee cap, developers partly pass unit fees on to app users by increasing in-app purchase prices. Third, a hypothetical buy-out of a streaming app by the platform leads to a significant decrease in the innovative efforts and market share of the acquired app. Notably, welfare analysis without quality adjustment is predicted to underestimate the impact of fee cap on social welfare by 0.91% - 2.06% points compared to the full-stage model estimates. This research highlights the importance of considering quality changes along with price fluctuations when evaluating regulatory intervention in digital platforms.