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Gustavo Saraiva – PUC Escuela de Administración

“False Advertising in App Stores: when apps lie about being free”

Abstract: This paper provides empirical and theoretical evidence that app stores may sometimes optimally choose not to remove paid apps that falsely claim to be free from their platforms, even in the absence of screening costs. On the empirical level, we show that simple automated screening can easily detect those apps. Despite that, app stores seem reluctant to remove those apps from their platforms, and in fact, they sometimes even seem to facilitate this type of false advertising. On the theoretical level, we propose a search model based on Diamond (1971) to show that the platform may benefit from obfuscating the apps’ signals regarding whether or not they are free in order to increase the probability that customers inspect paid apps, and thus, potentially purchase them, which in turn generates revenues to the app store through commissions. In particular, those incentives tend to be highest when the app store has a high mix of genuinely free apps, as in this case customers will tend to inspect free labeled apps only.

10 de Noviembre de 2020


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