Pay-to-Win in Video Games: Microtransactions and Fairness Concerns

Abstract

Microtransactions for functional items bring mixed results for game publishers. It is not clear why microtransactions are successful with FIFA 20 and Clash of Clans, but not with Star Wars Battle Front II. The effects of players’ fairness concerns on a publisher’s strategy are investigated. A publisher can either bundle a game and add-on (functional item) or offer the add-on separately through microtransactions. Players who do not buy the add-on in the microtransactions scenario have fairness concerns. While microtransactions exist in various video games, there is little research on economic implications of this monetization mechanism. Players’ fairness sensitivity and add-on power contribute to fairness concerns.

We find that when both players’ fairness sensitivity and add-on power are low enough, the publisher should use the microtransactions (unbundling) strategy. Otherwise, the publisher should bundle. Previous results in the literature suggest that the publisher should bundle if the correlation in valuations is low enough. More interestingly, when both fairness sensitivity and add-on power are high enough, the publisher should always prefer bundling, regardless of the correlation in valuations. In addition, the threshold of the add-on power, above which bundling is optimal, is non-increasing in fairness sensitivity. Both microtransactions and bundling strategies can create win-win situations for both the publisher and players. Even though the microtransactions strategy creates fairness concerns, using this strategy can be beneficial to society if properly implemented. Our results help to explain successes and failures of different selling strategies and provide guidance for future publishers in the video games industry.

Keywords: bundling, add-on pricing, in-game purchases, multi-player digital games, virtual currency