Abstract
We explore the phenomena of game companies offering to pay users in virtual benefits to take in-game that earn the game company revenue from third parties. Examples of such actions include paying users in gold coins to watch video advertising and speeding in-game progression in exchange for filling out a survey. These are common practices in mobile games that use a freemium business model, where users download and play for free and only a relatively small percentage of total users pay out-of-pocket when playing the game. We develop a dynamic optimization model that looks at the costs and benefits of offering incentivized to users as they progress in their engagement with the game. We find sufficient conditions for the optimality of a threshold strategy of offering incentivized to low-engagement users and then removing incentivized action to encourage real-money purchases once a player is sufficiently engaged. Our model also provides insights into what types of games can most benefit from offering incentivized actions.
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