Pay-to-play versus hybrid bundling for digital game platforms in digital decarbonization era

Abstract

Digital game platforms have provided “pay-to-play” (P2P) games for players to purchase and play on platforms for many years. Recently, platforms have adopted the hybrid bundling (HB) strategy that provides a bundled service of digital games in addition to P2P games. This strategy has the potential to facilitate the growth of digital games and address efficient decarbonization of physical copies of games. This study develops a theoretic model to explore whether the platform should adopt HB and, if so, what are the optimal value and price of the bundled service. We find that HB benefits profits when the usage cost of the bundled service is lower than that of P2P games, the unit price of P2P games is relatively high, and the spillover effect is low. Under such circumstances, the platform decides to provide a low-value and high-price bundled service to supplement P2P games. Moreover, when the usage cost of the bundled service is higher, HB benefits market size which also promotes digital games and reduces carbon emissions. Under such circumstances, when the unit price of P2P games is high, the platform provides a high-value and low-price service; otherwise, a low-value and low-price service. Interestingly, HB cannot simultaneously benefit both profits and market size. We find that a win–win–win situation exists for the platform, players, and social welfare when HB is profitable for the platform. When HB expands market size, it is always beneficial to players but may hurt social welfare. Finally, the bundled service may lead to social inefficiency.