Platform Design and Innovation Incentives: Evidence from the Product Ratings System on Apple's App Store∗ Benjamin T. Leydeny May 18, 2021 Abstract A lack of platform-level competition among digital marketplaces can result in socially in- efficient platform design and meaningful welfare losses, even independent of actively anti- competitive behavior. To illustrate the first-order effects platform design can have on com- petitive outcomes, I investigate how the longstanding design of the product ratings system on Apple's App Store affected innovative behavior by platform participants. I leverage an ex- ogenous change in this system to show that for nearly a decade, the design of the App Store's product ratings system led to less frequent product updating by high-quality products. I provide suggestive evidence that this policy resulted in lost, as opposed to simply delayed, innovation. ∗I am grateful to Gaurab Aryal, Ambre Nicolle, Michael Ward, Georgios Zervas, and seminar participants at the Centre for Competition Policy at the University of East Anglia, the Toulouse School of Economics Online Seminar on the Economics of Platforms, the CESifo Area Conference on the Economics of Digitization, the Toulouse School of Economics 14th Digital Economics Conference, the 12th Paris Conference on Digital Economics, and the 19th Annual International Industrial Organization Conference for helpful comments. yDyson School of Applied Economics and Management, Cornell University; CESifo;
[email protected] 1 1 Introduction A common issue in digital marketplaces