Digital platforms rely on reputation systems to address information asymmetries, yet how platforms aggregate and display this information can profoundly affect competitive behavior and innovation. In a recent IJIO paper, Platform Design and Innovation Incentives: Evidence from the Product Rating System on Apple’s App Store, Benjamin T. Leyden demonstrates that a seemingly minor design choice—how product ratings are summarized—can distort innovative behavior.
From 2008 to 2017, Apple’s App Store reset an app’s average rating to “No Ratings” whenever developers released a software update. This policy discouraged updating by imposing a reputational penalty on top of software development costs. When Apple unexpectedly removed this policy in September 2017, allowing developers to maintain their ratings across updates, three striking patterns emerged:
First, developers increased their update frequency by 35%—from one update every seven weeks to one every five-and-a-half weeks. This response was immediate and persistent. Second, the distortionary effects of the policy were strongest among the highest quality apps on the store. Apps in the top quintile of the rating distribution increased their updating after the policy change by 54% more than apps in the lowest quintile. Third, the policy affected update content and quality. Feature updates increased by 24%, while bug fix updates saw an even larger response. These changes improved app quality and performance: apps’ average ratings and demand—proxied by the number of new ratings received—increased.
The original rating reset created a reputational penalty that varied systematically across developers. For the most popular apps, ratings matter little for demand, so the penalty was minimal. But for more niche applications dependent on ratings to attract new users, the temporary reputation loss imposed a substantial cost to updating. The policy had an “inverted-U” shaped effect: while the reset policy affected all apps, the strongest distortions occurred among apps for whom the size of the penalty was neither too small nor too large.
The policy’s impact also depended on the rate at which apps could reaccumulate ratings after a reset. Apps in the slowest quintile for new ratings arriving, for whom a reset could have long-lasting effects, were far more responsive to the policy change than those that could quickly rebuild their reputation. For apps that could rapidly rebuild ratings, the estimated effect was statistically indistinguishable from zero.
Importantly, the reduction in updating under the reset policy appears to have reflected genuine lost innovation. While developers might have bundled the same level of improvements into fewer updates to minimize resets, the increases in both ratings and demand following the policy change indicate the original policy suppressed overall development effort.
This research provides empirical evidence that platform design decisions create first-order distortions in competitive behavior. The findings are particularly relevant as regulatory authorities worldwide scrutinize platform practices. While much attention focuses on platforms’ potential to self-preference or discriminate, this study highlights how ostensibly neutral design choices can significantly affect innovation incentives.
The results suggest several lessons. First, platforms should carefully consider how reputation systems and other design choices interact with sellers’ incentives to compete and improve their products. Second, in increasingly dynamic digital markets, policies intended to maintain rating accuracy or provide “fresh starts” may have unintended consequences that outweigh their benefits. Third, design choices often vary systematically across seller types, creating differential impacts that may not be immediately apparent.
Ultimately, in markets where platforms wield substantial power over information flows and competitive dynamics, platform design features can have significant consequences for innovation, quality, and consumer welfare. As platform markets grow in economic importance, understanding these mechanisms becomes increasingly critical for platform governance and competition policy.