Selling Bonus Actions in Video Games

Abstract

In the mobile video games industry, a common in-app purchase is for additional “moves” or “time” in single-player puzzle games. We call these in-app purchases bonus actions. In some games, bonus actions can only be purchased in advance of attempting a level of the game (pure advance sales (PAS)), yet in other games, bonus actions can only be purchased in a “spot” market that appears when an initial attempt to pass the level fails (pure spot sales). Some games offer both advance and spot purchases (hybrid advance sales). This paper studies these selling strategies for bonus actions in video games. Such a question is novel to in-app tools selling in video games, and it cannot be answered by previous advance selling studies focusing on end goods. We model the selling of bonus actions as a stochastic extensive form game. We show how the distribution of skill among players (i.e., their inherent ability to pass the level) and the inherent randomness of the game influence selling strategies. For casual games, where low-skill players have a sufficiently high probability of success in each attempt, if the proportion of high-skill players is either sufficiently large or sufficiently small, firms should adopt PAS and shut down the “spot” market. Furthermore, the player welfare-maximizing selling strategy is to sell only in the spot market. Hence, no “win-win” strategy exists for casual games. However, PAS can be a win-win for hardcore games, where low-skill players have a sufficiently low success probability for each attempt. This paper was accepted by Hemant Bhargava, information systems. Funding: C. T. Ryan received funding from NSERC Discovery [Grant RGPIN-2020-06488]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.02348 .