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
JEL(s): D40, L11
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.