In What’s Really Going on at the Arcade Freakonomics blog author Daniel writes about the arcade game The Claw. I’m sure you are as shocked as I to learn the game is rigged. Regardless of the morality of the Claw, or airlines charging for checked bags, one has to admire the inventiveness of such revenue optimization models. Vegas wishes it could do the same.
Hamermesh writes:
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.
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