Opening First-Party App Resources: Empirical Evidence of Free-Riding

Abstract

Although platform owners create significant entrepreneurial opportunities for third-party developers, they frequently compete with them by entering the same markets. This study examines the impact of opening a first-party app’s resources on rivals’ innovation. Unlike prior research, which assumes that first-party apps have exclusive access to their resources, our study reveals that increased openness of first-party apps leads to free-riding benefits for rivals. This openness boosts rivals’ consumer demand, thereby fostering greater innovation. Our findings show that rivals attract more consumers because of complementary offerings available through alternatives, rather than through improved experiences provided by third-party apps utilizing the first-party app’s open resources. Our research provides two key implications. First, beyond platform openness, platform owners might consider first-party apps’ openness as a strategy to enhance the ecosystem’s evolvability. Second, third-party developers can enhance their innovation capabilities to better exploit the free-riding benefits stemming from the openness of first-party apps.