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A Welfare Analysis of Gambling in Video Games

Author

Listed:
  • Amano, Tomomichi
  • Simonov, Andrey

Abstract

In 2020, gamers spent more than $15 billion on loot boxes, lotteries of virtual items in video games. Loot boxes are contentious. Regulators argue they constitute gambling, while game producers maintain they complement gameplay. In a prototypical mobile puzzle game we show that gameplay complementarity accounts only for 3% of loot box value for high-spending players. In contrast, the majority of players open loot boxes predominantly for gameplay complementarity. The company designs the game trading off revenue from high-spending players and engagement from other players. Our estimates challenge a debated blanket ban on loot boxes and support spending caps.

Suggested Citation

  • Amano, Tomomichi & Simonov, Andrey, 2023. "A Welfare Analysis of Gambling in Video Games," CEPR Discussion Papers 17939, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17939
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    More about this item

    Keywords

    Product design;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation

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