Spillover Effects and Freemium Strategy in the Mobile App Market.

This article investigates the impact of launching a free version alongside an existing paid version of mobile game apps on Apple's App Store, focusing on the "freemium" business model where basic services are free but advanced features require payment. Using daily data on app ratings as a proxy for demand and employing a difference-in-difference empirical framework with matched control apps, the study finds that introducing a free version increases demand for the paid version by approximately 8.9%. The authors identify two key mechanisms driving this effect: consumer sampling of the free version before upgrading to the paid version, particularly for apps with moderate quality ratings and substantial feature differences between versions, and enhanced app discovery due to increased visibility from having multiple versions. Robustness checks rule out alternative explanations such as coordinated marketing actions or price changes, and the findings offer insights for digital firms on when and how freemium strategies can effectively boost paid product demand.