Abstract
One of the most crucial aspects and significant levers that gaming companies possess in designing digital games is setting the level of difficulty, which essentially regulates the user’s ability to progress within the game. This aspect is particularly significant in free-to-play (F2P) games, where the paid version often aims to enhance the player’s experience and to facilitate faster progression.
In this paper, we leverage a large randomized control trial to assess the effect of dynamically adjusting game difficulty on players’ behavior and game monetization in the context of a popular F2P mobile game. The results highlight the intertwined dynamics of customer retention and monetization in such settings. As expected, offering players an easier game significantly decreases purchases in the specific round played — faced with an easier game, users do not need to resort to in-game purchases to make progress. However, because lowering the game difficulty increases both immediate engagement and long-term retention, lower difficulty levels result in a significant increase in customer spending both in the short and long run. We find substantial heterogeneity in the strength of these effects. Customers who are more prone to making progress in the game exhibit stronger effects in both the short and long run, whereas customers who previously spent money on the game exhibit stronger effects in long-term monetization. We leverage these insights to demonstrate how the focal firm can use dynamic game difficulty adjustment to further increase revenues from both advertising and premium services and to recommend personalized product design strategies for freemium apps more broadly.