Economic Analysis of Loot Box Market in Blockchain Games

Abstract

As an emerging blockchain technique, the blockchain-based loot box has received significant attention recently due to its promising characters in transparency and decentralization. Because all virtual assets are bound to the players' own address, which allows the players to control and manage everything, players can trade virtual items via the 2nd exChange Market (2CM) directly. To understand the players' optimal strategies and the game provider's optimal pricing, we conduct an economic analysis of both the game provider's and players' behaviors. In addition, gas fee, a unique factor in blockchain, is taken into consideration. Specifically, we model the interactions between the game provider and players as a two-stage Stackelberg game. In Stage I, we model the game provider's optimal pricing problem to maximize his utility using prospect theory (PT) due to the intrinsic demand uncertainty. In Stage II, the players choose the market which can maximize their utility to derive their preferred items. Moreover, our analysis and numerical results show that a game provider who considers the PT modeling should adopt a conservative pricing mechanism to increase his utility. Besides, the primary market is more susceptible to gas fees than the 2CM.