Abstracts Economics

Pricing economics of video games : a panel data study on the effects of versioning on revenue

by Samuli Koskela

The video game industry has seen major changes in the 21st century. The industry has experienced exponential growth as digital markets have enabled the usage of new business and pricing models which differ from the traditional retail trade of boxed goods. Meanwhile, the technological development and demand for more complex games has caused the production costs of video games to rise. This thesis analyses the video game industry and the price determination of its products, video games. Under the scope are both the traditional pricing economics of video games, as well as the recently emerged new pricing and business models, which according to the economic pricing theory fall under versioning type price discrimination. The research methods of this thesis include a literature review on the pricing economics of the video game industry, as well as an empirical panel data study on revenue gathering within the firms of the industry. The focus of the econometric research is to build a simple model to capture the main factors of revenue making among 7 big publishers of the industry between the years 2000 and 2020. Included factors are the quantitative data on published products, their qualities, and the pricing models used. The results of the study add to the existing literature by providing quantitative results on the usage of different versioning type pricing models. The findings show that using microtransactions and expansive type downloadable content accounts for a significant share of the industry growth, while using the free- to-play model combined with these types of versioning tools also generates significantly more revenue compared to the traditional retail model. The amounts of mobile and multiplatform games released also had explanatory power over the revenues, while console games, qualities of games, and the usage of the subscription model did not play a significant part in explaining revenue gathering within the firms of the study.