Mobile Apps and Targeted Advertising: Competitive Effects of Data Exchange

This paper studies how data exchange between mobile apps affects market competition. The identification exploits iOS's privacy policy update, which prevents apps from tracking users across other apps using identifiers. We find that the iOS update reduces incumbents' average number of new downloads by 0.9% and the number of startup app entries by 8.4%. Furthermore, we find that large apps experience larger declines in the download numbers and innovation than small apps. Our empirical findings indicate that restricting data exchange reduces large apps' competitive advantage. However, it may also cause market competition to decline in the long run due to the presence of more inactive apps and the entry of fewer new apps.