Opaque Selling in Player-versus-Player Games

Despite the sizable market for online games, research on the economics of online game operations remains nascent. In this paper, we focus on free-to-play player-versus-player games in which the game provider offers players an option to purchase game-specific virtual goods (items) before the game begins. Purchasing a virtual item can improve the player’s chance of defeating his opponent. Such practice motivates us to investigate the impact of disclosing the opponent’s skill level on in-game purchases. Analyzing a game-theoretical model that involves one game provider and two competitive players, we obtain the following results. First, when the price of the virtual goods is endogenously determined by the game provider, it is optimal for the provider to adopt “opaque selling” by concealing the opponent’s skill level information from players. However, opaque selling hurts the player’s welfare. Second, when the selling price is exogenously given, opaque selling is the dominant strategy for the provider, although the player welfare is lower, if and only if the price is low. Our results can help game providers decide whether to adopt opaque selling, and also offer a plausible explanation of why some providers adopt the opaque selling strategy.