An Analysis of A Mobile Platform ' s In - App Advertising

We develop a two-sided market model that captures two unique features of the in-app mobile advertising market: the joint structure of the adverting platform and agency pricing for the app sales channel. In the joint structure of the mobile advertising platform, both the platform owner and the app developer jointly control the provisioning of ads compared to the platform owner alone in the traditional advertising platform. We analyze the platform owner’s optimal in-app advertising contract that will drive the advertisers and app developer to engage in publishing ads within apps. Our results reveal the market conditions that dictate when the platform owner can profit by raising the app developer’s revenue sharing percentage in the in-app advertising contract, and when an app developer can benefit from the growth of the advertiser side of the market. We also investigate the impact of agency pricing for app sales on the platform owner’s in-app advertising contract. We show that the advertising revenue-sharing contract fails to coordinate the advertising platform in the presence of agency pricing for app sales, which may lead to higher app prices for app users.