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Working Paper

Price discrimination and big data: Evidence from a mobile puzzle game

Louis-Daniel Pape, Christian Helmers, Alessandro Iaria, Stefan Wagner, Julian Runge
Strategy and general management
Price discrimination, personalized pricing, mobile apps, online games, freemium
JEL Code(s)
D40, L11
We use a unique dataset from a mobile puzzle game to investigate the welfare consequences of price discrimination. We rely on experimental variation to characterize player behavior and estimate a model of demand for game content. Our counterfactual simulations show that optimal uniform pricing would increase profit by +340% with respect to the game developer’s observed pricing. This is almost the same as the increase in profit associated with first-degree price discrimination (+347%). All pricing strategies considered—including optimal uniform pricing—would induce a transfer of surplus from players to game developer without, however, generating sizeable dead-weight losses.