Working Paper: CEPR ID: DP16706
Authors: Louis Pape; Christian Helmers; Alessandro Iaria; Stefan Wagner; Julian Runge
Abstract: 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: price discrimination; personalized pricing; mobile apps; online games; freemium
JEL Codes: D40; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal uniform pricing (D41) | profit increase (D33) |
| observed pricing (D40) | profit increase (D33) |
| first-degree price discrimination (D40) | profit increase (D33) |
| pricing strategies (D49) | transfer of surplus from players to developer (F16) |
| pricing strategies (D49) | average losses in total welfare (D69) |
| players exhibit unsophisticated and myopic behavior (D91) | effectiveness of complex pricing strategies (D40) |