Opening first-party app resources: empirical evidence of free-riding

Abstract

Platform owners are releasing their own apps on their platforms. These first-party apps (FPAs) typically leverage platform resources more effectively, competitively threatening rivals. Although the impact of FPAs on rivals’ innovation has been the subject of extensive study, the dominant view in previous research assumes that these FPAs are closed to third-party apps (TPAs). However, there is an increasing trend of FPAs opening their resources to TPAs, as they provide application programming interfaces (APIs) allowing TPAs to access their resources. Rivals still exist, as many TPAs choose not to have access to FPAs’ open resources because of their limited control over these resources. Does opening an FPA’s resources impact rivals’ innovation? The answer to the question is largely unknown. We exploit the release of the Apple Health Records API, a feature that opens Apple Health Records to TPAs, to design a quasi-experiment that investigates whether and how opening an FPA’s resources influence rivals’ innovations. Through several analyses, we conclude that opening an FPA’s resources to TPAs generates free-riding benefits for rivals. Moreover, these benefits mainly arise because of the growing presence of TPAs that do not adopt FPAs’ open resources in the market. We discuss the theoretical contributions and practical implications of our findings.