Valuation of Participation in Social Gaming

Kwansoo Kim, Byungjoon Yoo, and Robert J. Kauffman
International Journal of Electronic Commerce,
Volume 18, Number 2, Winter 2013-14, pp. 11-50.

Abstract: This study examines the value of the time that a user spends to participate in a social game. We focus on how a massive multiplayer online role-playing game (MMORPG) vendor can establish prices to encourage participation and retain its players. We estimate value through an application of the hedonic pricing model and analyze a data set for an MMORPG in Korea. The results permit us to estimate the value of game-playing time in monetary terms. Based on our empirical results, we propose an economic model and conduct numerical simulation to show how a game vendor can apply differential pricing in this context. This enables us to design a pricing scheme to maximize a game vendor’s profit. Our study affirms the long-standing finding that building network effects associated with other game players’ participation is a critical source of benefits for the vendor. Going beyond this, we also find it is appropriate to use differential pricing, by subsidizing a participant’s game play initially and then charging more aggressively to extract the available consumer surplus over the player’s life cycle in the game, in order to reinforce a vendor’s ability to maintain a healthy number of game participants.

Key Words and Phrases: Customer valuation, econometrics, field study, hedonic pricing, hedonic value, MMORPGs, online games, role-playing games, social gaming.