Strategic Timing and Pricing For Selling Bonus Actions in Video Games
Posted: 19 Feb 2021 Last revised: 20 Sep 2021
Date Written: December 18, 2020
In the mobile video games industry, in-app purchases are a major source of revenue. A common in-app purchase is for additional "moves" or "time" in puzzle games. We call these in-app purchases "bonus actions". In some games, bonus actions can only be purchased in advance of attempting a level of the game (pure advance selling strategy), yet in other games, bonus actions can only be purchased in a "spot" market that appears when an initial attempt to pass the level fails (pure spot selling strategy). Some games offer both advance and spot purchases (hybrid advance selling strategy). This paper studies selling strategies, including both timing and pricing, for bonus actions in video games.
We model the selling of bonus actions as a stochastic extensive form game. We show how the distribution of skill among players (i.e., their inherent ability to pass the level), and the inherent randomness of the game, influence selling strategies. For instance, we show that if the proportion of highly skilled players is either sufficiently large or sufficiently small, firms should adopt pure advance selling strategies with no "spot" market. Furthermore, we find that firms are more likely to offer the pure advance selling strategy for a game of chance but the hybrid advance selling strategy for a game of skill. In addition, as the market heterogeneity increases (i.e., the skill differences among players increase), hybrid advance selling is more likely to be optimal.
Keywords: advanced selling, pricing, video games
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