DP16706 Price Discrimination and Big Data: Evidence from a Mobile Puzzle Game
|Author(s):||Christian Helmers, Alessandro Iaria, Louis Pape, Julian Runge, Stefan Wagner|
|Publication Date:||November 2021|
|Keyword(s):||freemium, mobile apps, online games, personalized pricing, price discrimination|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16706|
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.