A Welfare Analysis of Gambling in Video Games

Tomomichi Amano and Andrey Simonov

No 17939, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Product; design (search for similar items in EconPapers)
JEL-codes: D12 D18 D61 D91 L82 L83 M31 M38 (search for similar items in EconPapers)
Date: 2023-02
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