Three things about mobile app commissions

Mobile app commissions paid by app developers to a monopolist device maker/app store operator are examined. Three results are demonstrated. First, unregulated app commissions are set at a level that maximises consumer surplus. Second, eliminating app commissions will likely lead to higher device prices. Third, requiring a menu of options for consumers as to how device makers receive subsidies from app developers constrains app commissions in a way that provides a more equal balance between consumer versus app developer interests. • Consumer Surplus Maximisation: The paper argues that in a monopoly setting, the app commission rate set by the device maker will be the rate that maximises consumer surplus, not total welfare. By maximising consumer surplus from apps, the device maker can charge a higher price for the device itself, thus maximising its own profits. • Zero Commission Leads to Higher Device Prices: The paper demonstrates that eliminating app store commissions will lead to higher quality-adjusted device prices if the profit an app developer makes from a single consumer is greater than the surplus that consumer receives from that app. • Required Menu as a Regulatory Mechanism: The paper proposes a regulatory mechanism requiring device makers to offer consumers a menu of options: paying standard prices for the device and apps with a commission, or paying a premium for the device to get discounted app prices.