The Hidden Costs of Fairness in Platform Markets: The Dynamics of Lowering Developer Royalty Rates

Multisided platforms crucially rely on indirect network effects. When trying to strengthen these effects, platform owners face a fundamental challenge, namely, designing incentives to enhance developer effort and simultaneously ensuring the release of high-quality products on the platform. This paper highlights the costs associated with lowering royalty rates to boost developer effort, as such reductions increase the relative supply of lower-quality offerings, worsening information congestion pr