The Impact of an Augmented Reality Game on Local Businesses: A Study of Pokemon Go on Restaurants

Upon release, Pokemon Go, an augmented reality technology based game garnered tremendous interest in the public, with an average of 20 million daily active users. The game combines geo-spatial elements along with gamification practices to incentivize it’s users movement in the physical world. Such incentives can have potential externalities to businesses associated with them. Using online reviews of restaurants as a proxy for sales and quality, we study the impact of Pokemon Go on local restaurants. We treat the release of Pokemon Go as a natural experiment and study the post-release impact for the associated restaurants. We find that restaurants that are located near PokeStops indeed observe a higher number of customers compared to restaurants that do not have PokeStops nearby. However, there is no significant difference in terms of the perception of customers between restaurants that have PokeStops nearby and those that do not. In addition, the average menu price of the restaurants play an important role in moderating the effect of PokeStops on the foot traffic. Interestingly, restaurants with higher average menu price enjoy a higher increase in the number of customers who visit the restaurant after Pokemon Go was released. Being the first research to study economic implications of augmented reality applications, the research lays theoretical foundations of how the augmented-reality games affect the consumer economics behavior. It also helps to build insights into potential value of such associations for business owners as well as policy makers.