Date of Award

6-2014

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Yufei Ren

Language

English

Keywords

Apple, software, business strategy, price

Abstract

The Apple iOS App Store has only been around for 5 years, and yet it has completely changed the way that mobile software is distributed. In this brief period, the online marketplace has seen dramatic shifts in the most successful strategies used by iOS software developers and, more specifically, game developers to gain revenue. As of March 14th 2014 fifteen of the twenty top-grossing iOS apps feature some form of in-app currency that users may purchase with real money, eighteen are mobile video games, and all twenty of these apps are free to download. This paper explores a new business strategy, the pay for currency model, which has been highly successful in generating huge profits from App Store software distribution. This paper first builds on existing economic models for network externalities to include non-paying customers and provides an argument for how iOS games with in-app currencies can achieve a form of first-degree price discrimination.

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