Price Discrimination and Big Data: Evidence from a Mobile Puzzle Game
96 Pages Posted: 9 Nov 2021
Date Written: November 1, 2021
We use a unique dataset from a mobile puzzle game to investigate the welfare consequences of price discrimination. We rely on experimental variation to characterize player behavior and estimate a model of demand for game content. Our counterfactual simulations show that optimal uniform pricing would increase profit by +340% with respect to the game developer's observed pricing. This is almost the same as the increase in profit associated with first-degree price discrimination (+347%). All pricing strategies considered-including optimal uniform pricing-would induce a transfer of surplus from players to game developer without, however, generating sizeable dead-weight losses.
Keywords: freemium, mobile apps, online games, personalized pricing, price discrimination
JEL Classification: D40, L11
Suggested Citation: Suggested Citation