Do Nonmonetary Virtual Gifts Enhance or Diminish Voluntary Paid Gifts? Evidence from a Video Game Live-Streaming Platform

Platforms are increasingly deploying engagement rewards, granting users redeemable benefits for everyday activity such as logging in, commenting, and sharing content. Platform managers nevertheless hesitate, because a reward that increases viewer engagement may have unintended consequences for creator earnings, and managers rarely know in advance where it will bite. We study one such setting, video-game live-streaming, where viewers can convert engagement-earned coins into free virtual gifts that enter the same voluntary paid gifting channel that streamers rely on for income. A free sticker gives the same on-screen recognition as the cheapest 10-cent paid sticker, so viewers no longer need to pay to be seen appreciating the streamer. Intuition says free gifts could cannibalize paid ones. We find the opposite: access to free gifts increased paid gift spending by roughly $2.42 per viewer-streamer relationship per week. The reason is that free rewards dilute the signaling value of the cheapest paid gift, and committed viewers upgrade to costlier gifts to stand out. Free rewards complement monetization when gifting is publicly visible in real time and paid tiers remain clearly differentiated from free options. For policymakers, the question is what this does to creator income. Engagement rewards subsidize one side of a two-sided market, and the effect on the other side is rarely documented. Voluntary gifts from viewers are creators’ primary income, so a token program that hands viewers free versions of these gifts could erode it. Our evidence comes from an exogenous policy change on a major platform, and creators' paid gift income rose rather than fell. Free gifts also converted previously non-paying viewers into paying supporters, and the gains held across streamer popularity tiers, so the policy did not concentrate benefits among already-popular creators. Token programs designed this way need not trade off engagement growth against creator compensation.