Elder Scrolls Online (ESO) makes for an interesting case study of price discrimination. This game has over 13 million players located all around the globe. ESO is a company, and like any company, they are in business to make money. With so many players from many different countries, ESO needs to find the best prices for their products. How does economic theory predict ESO will behave? Economic theory would make us believe that ESO engages in price discrimination. Is that the case?
What is price discrimination? Price discrimination is when you charge different customers a different price for the same product.
Why would a company engage in price discrimination? Easy, price discrimination leads to higher profits.
For example, assume that ESO has 2 different customers and 1 product. One customer, let’s call him Argentina, is willing to pay no more than $4 for the product and the other customer, let’s call him USA, is willing to pay no more than $10. ESO has 3 different pricing strategies to choose from:
1. They can charge every customer the same price of $10. Argentina would not buy the product because it’s more than what he is willing to pay. USA would buy the product because he is willing to pay that amount. This would result in ESO making a profit of $10.
2. Alternatively, they can charge every customer the price of $4 and have both customers buy it. Argentina would buy it and so would USA because it’s equal to or less than the amount they’re willing to spend. This would result in ESO making a profit of $8 ($4 + $4).
3. Or, they can engage in price discrimination and have both customers buy it - but they squeeze as much money as they possibly can from each customer. Argentina would be charged $4 for it - and he would buy it. USA would be charged $10 for it - and he would also buy it. ESO maximizes revenue: $14 ($10+$4).
Economic theory tells us that since ESO wants to maximize profits, they will choose strategy 3 and engage in price discrimination. Economic theory also tells us that USA consumers will be charged more because they will be willing to pay more - and they will be willing to pay more because the average USA consumer has much more money than the average Argentina consumer.
Now that we got the theory out of the way, we can observe the real world and see whether this economic analysis has any merit.
As of March 2020, these are the prices for in-game cash (called Crowns) that ESO charges for players located in USA:
- $7.99 for 750 Crowns.
- $14.99 for 1,500 Crowns.
- $149.99 for 21,000 Crowns.
And these are the prices that ESO charges for players located in Argentina (the prices are displayed in Argentine pesos in the game, but I will convert them into USA dollars to make them comparable):
- $2.24 for 750 Crowns.
- $3.83 for 1,500 Crowns.
- $33.55 for 21,000 Crowns.
That is a significant difference in pricing. It is more than $100 dollars cheaper for the Argentina consumer to buy 21,000 crowns. In other words, USA has to pay 347% more than Argentina for the same product.
Not only are Crowns cheaper for the Argentina consumer, but also a 1-month ESO Plus subscription costs $14.99 to USA consumers and only $2.38 to Argentina consumers. Also, the newest DLC costs $59.99 to USA consumers and $36.30 to Argentina consumers.
We can conclude that the economic theory is correct: ESO engages in price discrimination to increase profits and USA consumers are charged a higher price.
The Argentine prices were provided by my friend who lives in Argentina - and who I play ESO with. At the time of writing, $1 dollar = $62.5027 Argentine pesos.
The USA prices can be found here: