Price discrimination in the mobile game industry

How Mobile Games Rake In Billions
by: Sarah E. Needleman
Jul 29, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: Price Discrimination

SUMMARY: Behind a pair of recent multibillion-dollar deals in the mobile videogame industry is an expertly crafted weapon: virtual goods sold inside apps for as little as 99 cents a pop. In-app purchases let players spend real money to bypass ads, acquire skills or grow powerful quickly.

CLASSROOM APPLICATION: Students can evaluate the evolution of mechanisms within mobile videogames to increase the likelihood that players purchase in-game tools to improve the playing experience. One interesting class of mechanisms involves behavior-based price discrimination: "Data on players' behavior also are used to strategically tweak prices for virtual goods in real time."

QUESTIONS: 
1. (Introductory) Is the use of a countdown clock within a game a tool used by game developers to price discriminate?

2. (Advanced) What is "behavior-based price discrimination"? What are examples of behavior-based price discrimination noted in the article?

3. (Advanced) Evaluate the statement, "Developers have gotten savvier about giving players more free things to do to keep them hooked until they start spending." Does getting hooked on a game imply that the player's demand for continued and faster play is more price inelastic? Does the higher price inelasticity imply that the player is more willing to pay to play a game without imposed delays?

Reviewed By: James Dearden, Lehigh University