INSERT COIN: Will lower App Store fees mean lower prices in free-to-play games?

One question I’ve wanted to consider formally for some time is whether a lower commission rate in the App Store would lead developers to reduce the prices they charge for virtual goods in free-to-play games. The latest development in the Epic Games v. Apple trial gave me the impetus to do so, and I am publishing a brief commentary on the topic.

The commentary begins with a formalization of free-to-play pricing logic, modeling developers as monopolistic actors that price virtual goods to maximize revenue. It then surveys the empirical literature on VAT pass-through, arguing that, like VAT cuts, reductions in App Store fees are unlikely to be entirely passed on to consumers.

This analysis asserts that while commission reductions may result in non-pricing benefits being realized by consumers, they are unlikely to result in lower baseline prices for virtual goods.