Price Discrimination in Digital Marketplace: an Analysis of Purchasing Power Parity (PPP) and Digital Arbitrage

Abstrakt

Today's digital borders are being redrawn by companies through geo-blocking and regional pricing strategies. The concept of digital arbitrage has entered our lives as a result of consumers in different countries accessing products/services at different prices, in line with companies' price differentiation strategies. This study aims to examine regional pricing in digital markets within the framework of purchasing power parity, and to explain the concepts of digital arbitrage and geo-blocking as methods of preventing digital arbitrage. Furthermore, this study aims to empirically test pricing behaviours on Steam, the world's largest digital game distribution platform, by correlating them with countries' purchasing power parity. The price of a basket consisting of 10 games was examined in 63 countries from different income groups and analysed using both linear and log-linear regression models. The findings suggest a statistically significant positive relationship between income levels and digital game prices, although the explanatory power of the linear model remains limited. The log-linear specification provides a better fit, indicating that the relationship may be proportional rather than strictly linear. In addition, deviations from predicted prices reveal substantial cross-country differences and point to the potential existence of digital arbitrage opportunities. The study contributes to the literature by revealing, through concrete data, how price differentiation policies trigger digital migration.