A Welfare Analysis of Gambling in Video Games

65 Pages Posted: 14 Feb 2023 Last revised: 12 Apr 2023

See all articles by Tomomichi Amano

Tomomichi Amano

Harvard University - Business School (HBS)

Andrey Simonov

Columbia University - Columbia Business School

Date Written: February 25, 2023

Abstract

In 2020, gamers spent more than $15 billion on loot boxes, lotteries of virtual items in video games. Loot boxes are contentious. Regulators argue they constitute gambling, while game producers maintain they complement gameplay. In a prototypical mobile puzzle game we show that gameplay complementarity accounts only for 3% of loot box value for high-spending players. In contrast, the majority of players open loot boxes predominantly for gameplay complementarity. The company designs the game trading off revenue from high-spending players and engagement from other players. Our estimates challenge a debated blanket ban on loot boxes and support spending caps.

Keywords: Product design, lotteries, gambling, dynamic demand models, video games

JEL Classification: D12, D18, D61, D91, L82, L83, M31, M38

Suggested Citation

Amano, Tomomichi and Simonov, Andrey, A Welfare Analysis of Gambling in Video Games (February 25, 2023). Available at SSRN: https://ssrn.com/abstract=4355019 or http://dx.doi.org/10.2139/ssrn.4355019

Tomomichi Amano

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

Andrey Simonov (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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