Advertising Strategies for Mobile Platforms with 'Apps'

Mobile platforms are prevalently used in the age of social media. They serve a two-sided market to connect users and app developers. In this system, members simultaneously sell products, publish advertisements (ads), and advertise. This paper aims to explore advertising strategies for the mobile platform incorporating their roles as sellers, ad publishers, and advertisers. Specifically, we develop a game-theoretical model which captures the relationship among the works of the platform owner and app developers in a dynamic setting. Our analysis shows that when the platform displays apps' ads, the owner may be better off to participate in apps' advertising under certain conditions, rather than always charging them aggressively as suggested by convention wisdom. Surprisingly, although the negative impacts evoked by multiple apps' entry deserve much attention, it is unnecessary for app developers to take into account when making advertising decisions. We further find that the coordinating bilateral participation in advertising is a new mechanism to improve the profitability. Unlike the result proposed in the previous literature, the mechanism here will cause free-riding among app developers when they participate in the platform's advertising. Furthermore, when accompanied with the revenue sharing policy, the relatively low participation rates could absolutely eliminate the system inefficiency.