Abstract
Regularly, free-to-play games use their own virtual currency for in-game store purchases. We analyze the money illusion phenomenon by examining free-to-play games and their virtual currency exchange rate policies. We find that above pari exchange rates and advertising bonus packs instead of price discounts lead to money illusion on the side of the customer. Based on our findings, we derive managerial and policy implications.
Highlights
In the traditional video game industry, premium games were sold to customers at a specific price
An above par exchange rate is confirmed when considering the average virtual currency exchange rates from each game reported in Table 1
For the exchange rate to be at par, the average virtual currency exchange rates should be equal to 1
Summary
In the traditional video game industry, premium games were sold to customers at a specific price. The past decade has seen a radical shift in the business model of the gaming industry, where the biggest-grossing video games, such as Fortnite and League of Legends are provided free of charge. These constantly updated games are more social, more competitive, and mostly addictive. Game developers carry out price differentiation, where packages with larger quantities have higher exchange rates. Price discounts or bonus packs are two forms of sales promotions These forms might be economically equivalent, but are psychologically different.
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