Selling Virtual Currency in Digital Games: Implications for Gameplay and Social Welfare

Despite the growing popularity of in-game purchases of virtual currency in digital games, there is very limited formal research that studies this new business model. This paper builds on the neoclassical labor–leisure model to examine the impact of selling virtual currency on players’ gameplay behavior, game provider’s strategies, and social welfare. When the game provider offers virtual currency for sale, players have two options to obtain virtual currency— playing the game and purchasing virtual currency directly. We introduce a parameter—the enabling-power rate of virtual currency—to characterize the extent to which virtual currency generated in a unit of playing time can augment players’ production of gaming leisure. We find that selling virtual currency reduces the playing time for certain heavy players, whereas it boosts certain light players’ playing time. It may also lead to a larger player base allowing more people to enjoy the benefits of playing digital games when the enabling-power rate of virtual currency is sufficiently high. The game provider should charge a higher (lower) virtual currency price for a game with a relatively lower (higher) enabling-power rate of virtual currency. She should also set a higher (lower) ad level for a game with a relatively higher (lower) enabling-power rate if the game’s base valuation of gameplay, that is, the valuation of gameplay independent of virtual currency, is sufficiently low. Finally, we demonstrate that selling virtual currency could lead to a win–win–win situation for the game provider, players, and society as a whole. It will alleviate the conflict of interest between the provider’s goal of longer playing time to maximize her ad revenue from in-game ads and the social goal of reducing excessive gaming, especially for heavy players. The online appendix is available at https://doi.org/10.1287/isre.2018.0812 .