Implications of Quality Discrimination in Multiplayer Games: The Role of Social Comparison Effect

In contemporary online multiplayer environments, disparities in social capital between new and repeat participants give rise to pronounced social-comparison dynamics. New players, who lack both experiential knowledge and accumulated in-game resources, often experience psychological inferiority when interacting with more seasoned participants. This effect diminishes the incentive for potential newcomers to engage with the game, thereby threatening the long-term sustainability and growth of the community. To mitigate it, an increasing number of game providers have adopted behavior-based quality discrimination (BBQD) strategies, through which they grant enhanced in-game benefits to new players in order to bolster their engagement. In this paper, we develop a two-period, game-theoretic framework in which two horizontally differentiated game providers set constant prices for their respective multiplayer games. We examine the strategic interplay between social-comparison effects and the adoption of BBQDstrategies. Contrary to the conventional wisdom in behavior-based discrimination (BBD) literature (including behavior-based quality discrimination and price discrimination) where BBD typically reduces firm profitability in duopoly markets, our analysis shows that the incorporation of social-comparison effects allows providers to increase both pricing power and profitability under BBQD. Furthermore, we find that providers can benefit from implementing BBQD when upward comparison is strong while may fall into into prisoner's dilemma when upward comparison is weak. Finally, we figure out the impact of BBQD strategies on consumer surplus and social welfare. And we further verify the robustness of 2 the above results through several model extensions relaxing baseline assumptions.