Can applications predinstalled in system/priv-app be updated via Play Store? we're trying to make our custom launcher default one in our phone. Since it needs system level permissions (placing widgets) we placed it in system/priv-app, and it finally works ok. Problem is that it is not updateing with new version from Play Store. - we're getting error 505 after downloading update, on start of install process 

thank you in advance!
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If the "pre-installed app" uses the same signature as the one on Google Play, it of course can be updated that way – same as e.g. Google Maps and other pre-installed stuff is.

Note that, however, those updates would not be integrated in the ROM, but go into user-space – "overlaying" the pre-installed version. This gives users the advantage of being able to "uninstall updates", but at the cost of "double space" (the original APK remains in /system – not that they could use that space otherwise, though).