Digital Games

Digital games, including social games, mobile games, PC and console games, and massively multiplayer online games, have experienced remarkable growth in recent years. Game makers have been experimenting various strategies to monetize their games. Beyond the traditional subscription fee and fixed fee models, a new business model has recently become a standard feature in digital games: selling virtual currency through in-game microtransactions.

Despite the growing popularity of in-game purchases of virtual currency (to obtain game enhancing virtual items) in digital games, there is very limited formal research that studies this new business model. Guo et al. (2017) build upon the neoclassical labor-leisure model to examine the impact of selling virtual currency on the game provider’s strategies, players’ gameplay behavior, and social welfare. In our model, players have two options to obtain virtual currency – either through playing the game or purchasing virtual currency. We find that the game developer’s optimal strategies for virtual currency price and ad level depend on two key game characteristics – enabling-power rate of virtual currency (i.e., how much players benefit from enhanced gameplay due to virtual currency generated per unit of playing time) and base valuation of gameplay (i.e., the valuation of gameplay independent of virtual currency). Our results suggest that the game provider should charge a high (low) virtual currency price for a game with a relatively low (high) enabling-power rate of virtual currency and set a high (low) ad level for a game with a relatively low (high) base valuation of gameplay. We find that offering virtual currency for sale reduces the playing time for certain heavy players, which helps alleviate the risk of excessive gaming. At the same time, selling virtual currency boosts certain light players’ playing time. Selling virtual currency may also lead to a larger player base and thus more people enjoy the many benefits from playing digital games. Finally, we demonstrate that selling virtual currency could lead to a “win-win-win” situation for the game provider, players, and society as a whole.

References:

Hong Guo, Lin Hao, Tridas Mukhopadhyay, and Daewon Sun (authors in alphabetical order). 2017. “Selling virtual currency in digital games: Implications on gameplay and social welfare.” Working paper.