Gaming and Gambling - A Closer Link?

Video games are a rapidly growing multibillion-dollar industry. In 2018, the video game industry posted revenues of $110 billion in 2018, with 80 percent of this revenue attributed to free-to-play games. The growth of revenue in this industry has been largely attributed to the adoption of microtransactions, specifically loot boxes. These pricing strategies allow for the developer to establish a never-ending transaction with the customer within the product, which is why many developers have focused on freemium models that get the game into the hands of as many customers as possible and then profit off of the in-game purchases.

Prior research on microtransactions and loot boxes has focused on the legal and ethical perspectives of these pricing strategies. While research interest in this topic has been increasing over the past couple of years, research lacks an understanding of the role of virtual currency as part of these pricing strategies and on the perspective of the business.

To address this gap in the literature, I investigate the effect virtual currency has on frequency that a customer makes digital purchases and the total amount spent on digital purchases.

Children and those with addictive behaviors have been the focus of most of the literature on microtransactions and loot boxes due to concerns regarding the vulnerability of these customer segments to these potentially deceptive pricing strategies and proposing that loot boxes are linked to gambling. Advocates and researchers have had mixed success globally of lobbying legislators to enact legislation aimed at protecting these vulnerable customer segments.

The video game industry has responded to this by implementing virtual currency that can be pre-purchased to make these transactions.

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However, this pricing strategy potentially aligns the video game industry more closely with the gambling industry that uses chips to distance the customers decisions from cash. Thus, it is an empirical question whether pricing goods with a company-specific virtual currency can increase the frequency of transactions and total dollar amount spent on digital items, and how it profits from those with addictive behaviors. I will examine my research question by conducting an online survey of individuals who have engaged in microtransaction. While prior studies often compare those who engage in microtransactions versus those who choose to not engage with microtransactions, this study focuses on the additive effects of virtual currency and not how an individual who purchases virtual currency might differ from an individual who does not engage at any level with microtransactions. I decided to examine my research question using survey methods due to concerns that engaging in loot boxes can result in future gambling tendencies, which makes conducting an experiment examining these questions an ethical impossibility.

I predict that individuals, who engage in microtransactions, engage with greater frequency and spend more money on microtransactions when the individual pre-purchases virtual currency from the developer versus paying for the microtransactions directly. I also predict that virtual currency use increases the customer’s engagement with loot boxes. I base these predictions based on the concept of distancing the purchase from real money, which closely mimics casinos strategy of using chips to distance cash from the gambling decision. I also pose several research questions. I expect that customers will purchase more virtual currency than they will actually spend in-game due to shifting interests in games, in which they cannot transfer the virtual currency. While loot boxes always provide some digital item, I also expect that the value that a customer feels that they receive across all loot box purchases is less than the dollar amount they would spend on the digital items in total given the backlash the industry has received over loot boxes.

The findings in this study make several contributions to both the literature and practice. To my knowledge, this study is the first to examine the effect of developing a company or product specific virtual currency that must be purchased in order to make small transactions with the company or within the product. I predict that individuals who purchase these virtual currencies will make in-game purchases more frequently and spend a greater amount on in-game purchases than those who only purchase in-game content directly. This finding will be important for businesses, because it suggests that a business can both increase the frequency that a consumer interacts financially with a product and average amount of money that a consumer spends on that product.

Second, this study contributes to the literature on gaming and gambling. This study demonstrates the affect of virtual currency on enabling those with addictive behaviors to engage in loot box mechanics. Prior research has examined loot box engagement and problematic gambling behaviors. I predict that when virtual currency is used to purchases loot boxes problematic gamblers will engage more with loot boxes than when loot boxes are purchased directly. This finding provides further support in the literature that these pricing strategies may be predatory of those who suffer from problematic gambling behaviors.

Lastly, this study contributes to legislators’ understanding of this business model. While legislators across the globe have either begun to examine the effects of loot box mechanics and gambling addiction or have already begun to enact legislation against this pricing strategy, the video game industry has countered this with the adoption of game or developer-specific virtual currency. While the measures taken by the video game industry help distance loot box mechanics from gambling, these measure intensify the addiction to these mechanics by those who are problematic gamblers. The remainder of this proposal proceeds as follows. In section 2, I review the prior literature on virtual pricing strategies and develop the hypotheses. In section 3, I discuss the method used to answer the research question. In section 4, I provide the expected results, and section 5 concludes the paper.