Welfare and fairness in free-to-play video games

Are free-to-play (F2P) video games reducing consumers’ welfare? How do changes in the game balance affect players? Despite being the most relevant business model in the video game industry, no consensus exists on the welfare implications of free-to-play (F2P) video games. This work proposes a theoretical economic model that explains why companies prefer F2P to pay-to-play (P2P) in the long term and how game fairness is determined in the short term. In the long term, the consequences of player welfare depend on the quality and network effects of the video game. In the short term, the impact on welfare depends mainly on the relationships among in-game items. Thus, welfare implications are likely to change as new items are added/removed. Finally, we test the theoretical models by estimating the fairness level in three F2P video games and show preliminary evidence that this business model would have reduced welfare.