Does It Pay to Shroud In-App Purchase Prices?
Authors: Shulman, Jeffrey D.; Geng, Xianjun
Journal: Information Systems Research (2019)
<jats:p> Should mobile app platforms make it harder or easier for consumers to discover in-app purchase prices before they purchase an app? This research provides insights for both platforms and the app developers who are on them. Common intuition would suggest that platforms that earn commission on revenue from both apps and in-app content would benefit from extreme shrouding, because competing app developers can exploit their customers with monopoly pricing on the in-app content. However, our research shows that established app platforms, such as the Apple App Store and Google Play, and emerging app platforms, such as Slack and Alexa, should choose a shrouding level that results in at least some consumers observing the in-app purchase price. This paper uniquely finds a nonmonotonic relationship between shrouding of in-app purchase prices and profitability. As a consequence, platforms should also avoid making in-app purchase prices completely transparent such that all consumers observe the prices. The optimal decision is a moderate degree of shrouding, in which some consumers become informed of in-app purchase prices yet other consumers choose not to read (or listen) through all…