Device-funded vs ad-funded platforms

We analyze device-funded and ad-funded platforms with differentiated ecosystems supporting apps provided under monopolistic competition. The incentives of a device-funded platform in investing in app curation, introducing its own apps and setting commissions on in-app purchases of external apps are largely aligned with those of consumers, while this is not necessarily the case for the ad-funded platform. In particular, consumers gain from a positive commission set by the device-funded platform because this implies a lower price of the device, and the platform’s apps are introduced and priced internalizing the impact on consumer welfare, perfectly in models of horizontal differentiation and partially in models of vertical differentiation.