What Makes Players Pay? An Empirical Investigation of In-Game Lotteries

Abstract

In 2020, gamers spent more than $15 billion on loot boxes, lotteries of virtual items in video games. Paid loot boxes are contentious. Game producers argue that loot boxes complement the gameplay and expenditures on loot boxes reflect players’ enjoyment of the game. Consumer protection groups argue that the mechanics of paid loot boxes closely resemble gambling and can attract spenders who get the direct thrill from paying for uncertain rewards. We use a unique dataset from a prototypical mobile game to structurally estimate and compare the tastes for gameplay complementarity of loot boxes of regular and high-spending players. While regular players enjoy loot boxes primarily for their gameplay complementarity, high-spenders get the vast majority of loot box value from the direct utility. Thus, the estimates confirm that gameplay complementarity does not play a first-order role in the utility of high spenders. We use the estimates to simulate the outcomes under counterfactual game design and show how the current game design trades off revenues and player engagement. We then evaluate policy actions proposed by consumer protection groups and regulators.

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

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