A student described her summer job at an arcade. In the “crane” game you win prizes by manipulating a claw to grab stuffed animals or basketballs, but the arcade owner can and does manipulate the odds of winning. If a new crane machine is played rapidly, the crane is automatically adjusted from its normal settings to make the odds longer because the player is signaling an addiction to the game. If the machine lies idle for a while, the odds are made more favorable than normal. This three-tier price discrimination takes advantage of implied differences in players’ demand elasticities. This is the first example I’ve come across of price discrimination based on manifestations of individual-specific differences in demand elasticities rather than those based on the demographic or timing characteristics of demand. (HT: S)
What’s Really Going on at the Arcade
TAGS: price discrimination
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I would love to read more about this. Was this a paper your student wrote, or just an oral report?
In either case, perhaps arcades would be a good topic to include in the next freakonomics book?
Really? Video games have really come a long way since I was a kid. Fascinating stuff-it would seem that if this became common knowledge it would actually hurt the arcades in the end so seems penny wise pound foolish. Either way, interesting application of learning in the video game industry. Great article – Adrian Meli
The World’s first Robot Carney, with Auto-Fishing for Suckers.
Give them shiny bait, easy money, attractive prizes. Let them bite and reel them in when the barb embeds.
I’ve won a lot of toys through these crane games, and one of the ways to do it is to watch someone else pay out to see how hard the crane grabs – if a machine is ready to give a toy away it grabs harder.
I think that perhaps motel pricing would be another case of pricing based on individual-specific differences. A friend of mine who worked the front desk of a motel told me that he basically could charge whatever he wanted (from a minimum to a maximum) for a room. Thus, if someone drove up in a red Corvette, he charged the maximum–or perhaps if he just didn’t like the looks of them. On the other hand, if someone came in and built rapport, he gave them the best price.
Same with magazine sales. When I worked in the industry, I could give a customer any price between the student price (lowest) and the newstand price (highest). It was completely arbitrary (though we didn’t advertise that). I heard customer service reps lie through their teeth about “not being able to give you that price.” Me? I just kept the customer–after all, over a lifetime, we’d surely make back in advertising revenue and magazine revenue all that I saved the customer.
Just some thoughts.
Wow, this is really similar to the effect video games have on players. The addiction leaves players thirsty for more, thus video games get more and more challenging, and kids keep on playing them even though they know they have a really small chance to win. So, the arcade, if it has a chance, will use this technique of taking advantage of the elasticity of addictive players with one of their games. In this case, the crane machine. I think this a wrong thing to do yet there is nothing we can do about it because the owner of the arcade will keep doing it to increase profit. But, consumers must be aware that those types of games where the odds are winning are so low have some kind of trick put in them. Any game that could be addicting has a trick for the consumer to keep on playing and paying for it. So, consumers need to be more aware when they play that crane machine.
I’d be curious as to how the odds are manipulated (I’m guessing less refined movement in the motors so you can’t be as precise), since the crane game is generally considered to be more skill (at picking what types of prizes can be collected as some can be held easier than others, and where the prize is located i.e. is it blocked by another prize) and less a game of chance.
I know other group based race carnival games (think shoot water in the clowns nose, and a stuffed animal races up a track – the first one to the end wins) have been “tweaked” so that all players finish within a certain range. So as the leader nears the finish line, if someone else is too far back, the leaders move doesn’t go as far per turn, so the race is closer – and everyone feels like they could have won.
Don’t know if it’s true, but anecdote (personal) says slots are set the same way. Never won unless it sat idle for some time prior to my playing. (Oh yeah, they’re regulated by the “gaming” commission…)