Incentivized Actions in Freemium Games

41 Pages Posted: 1 Jun 2017

See all articles by Christopher Ryan

Christopher Ryan

University of Chicago - Booth School of Business

Mahesh Nagarajan

University of British Columbia (UBC) - Sauder School of Business

Lifei Sheng

University of British Columbia (UBC) - Sauder School of Business

Date Written: October 8, 2016

Abstract

We explore the phenomena of game companies offering to pay users in "virtual" benefits to take actions in-game that earn the game company revenue from third parties. Examples of such "incentivized actions" include paying users in "gold coins" to watch video advertising and speeding in-game progression in exchange for filling out a survey. These are common practices in mobile games that use a freemium business model, where users download and play for free and only a relatively small percentage of total users pay out-of-pocket when playing the game.

We develop a dynamic optimization model that looks at the costs and benefits of offering incentivized actions to users as they progress in their engagement with the game. We find sufficient conditions for the optimality of a threshold strategy of offering incentivized actions to low-engagement users and then removing incentivized action to encourage real-money purchases once a player is sufficiently engaged. Our model also provides insights into what types of games can most benefit from offering incentivized actions.

Suggested Citation

Ryan, Christopher and Nagarajan, Mahesh and Sheng, Lifei, Incentivized Actions in Freemium Games (October 8, 2016). Available at SSRN: https://ssrn.com/abstract=2976535 or http://dx.doi.org/10.2139/ssrn.2976535

Christopher Ryan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Mahesh Nagarajan

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Lifei Sheng (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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