The effect of donation-based funding on user innovation in the video game industry

This study investigates how the introduction of Donation-Based Funding (DBF) affects the quantity and quality of user innovations in the video game industry. While the impact of financial incentives has been investigated in other knowledge-sharing and User-Generated Content (UGC) communities, the findings have been mixed. It is also unclear how financial incentives affect a highly creative industry like video games. By leveraging a Difference-in-Differences (DiD) analysis and Coarsened Exact Matching (CEM), the effect
of DBF on the quantity and quality of user contributions in the video game industry is analyzed. Secondary data is collected from two of the largest mod platforms for PC gaming, namely Nexus Mods and the Steam Workshop. The results indicate that the introduction of DBF significantly increased both the quantity and quality of user contributions on the treatment platform. The implications of these findings on the effect of financial incentives on user innovation, the implications for video game developers and platforms, and future research directions are discussed.