The Rise of User Concentration in the Mobile App Market

We document a sizable increase in the concentration of active users toward the top mobile apps. In narrowly defined categories, the share of active users for the top app increases from 38% in fall 2015 to 47% in spring 2022. This sharp rise in user concentration can be primarily attributed to top apps’ significantly higher pace of version updates. Motivated by these stylized facts, we present a conceptual theory in which competing apps invest in version updates along a quality ladder. We show that this dynamic game resembles the intuition in Sutton (1991): apps that anticipate a larger number of users have stronger incentives to pay fixed costs to provide version updates, which, in turn, attracts more users and further incentivizes updates. We present additional empirical evidence showing that endogenous product updates are the primary explanation for the rise in user concentration. Despite commanding a much larger user base, top apps must maintain their market dominance through persistent investments in product quality