You see the title. I have been pondering it at the player and game levels. Let me give you a few examples so we’re on the same page here.
In Guild Wars 2, there are costumes of town clothes you can buy, usually around the holidays. These are basically “I win” buttons for the costume brawl. The Executioner outfit is so good that the November update disabled town clothes in WvW zones. Costume brawl is a tiny mini-game that has no outside effects beyond a few achievement points, but within that little sphere, $10 lets you reign supreme.
I have been playing a bit of Marvel Puzzle Quest lately, and the PvP portion is pretty blatantly P2W. You can get a modicum of reward with heroes you earn by playing, but when you hit someone with a level 80 Doctor Doom, you know he has spent a lot of time or money (likely both) for the privilege of rolling over everyone who hasn’t dropped a fair amount of money on the game. That becomes circular: the PvP tourneys award top-level heroes and villains, which you stand no chance of getting unless you already have top-level heroes and villains, and which you probably cannot keep without spending some money because your number of character slots is limited by the cash shop currency (you get some free). So most of the game is open to everyone, but the top ranks of the PvP game is basically a playing ground for the higher paying customers.
And then there are hundreds of browser-based games where you can be the bully on the block for $20 or $100. Buy bigger stats or armies or whatever and roll over the other players. You bought your ticket to be a wolf, and the F2P players are your sheep. That usually covers the whole game, but is “small scale” in the sense that the game is small, people feel low investment, and walking away is easy. After a few tries, many players walk away from these games entirely.
At the player level, I know that winning is fun, but at some point most people get bored without a fair fight. Once you turn on god mode for a game, it often palls. Stomping through the game with no resistance is amusing for a little while, but the game is gone. And then when you turn off god mode, you can still see past the grind and know you could get past the grind with a few cheat-clicks, so the illusion of achievement is gone. I cannot see how pay-to-win works for the player except either very short term or for bullies.
At the game level, that same problem plays out on a grand scale. Unless you can successfully monetize churn, you should expect your P2W customers to get bored of W and stop P. The only way that works is if you keep them competing with each others, and real competition is exactly what the bullies were avoiding. The bullies are negatively impacting the game for your non-whales, who can choose to become one of the P2W competitors or drop out but are discouraged from spending small amounts on the game.
It seems like P2W poisons the game, and rather quickly. When it is on the small scale, like one subsystem you can P2W, you are still poisoning that subsystem, so the goose that lays the golden eggs is dying. The non-P2W players avoid that part of the game, you run out of sheep, and now you cannot sell wolf tickets. That, and the need to let people pay to be even bigger wolves, is presumably what that part of the game sees more cash shop mudflation.
The best case scenario for these is to create a two-tiered system, whereby the paying customers and the non-paying customers are essentially doing the same thing, but the paying customers are the ones in the high-level game. This is effectively what most F2P games do with their PvE content, letting you in for free but requiring money to play anywhere near the top. That only works well if the top is isolated by a glass wall; you want your low level players to see the awesomeness of the paying customers but not be negatively affected by trying to compete with them. You want your non-paying customers to feel like they should be (paying to be) competing with the big boys, but you don’t want your big boys driving off the fresh meat. But feasting on fresh meat is the whole point if you are a P2W bully.
So you see, perhaps, why my thoughts keep getting stuck in a circle, and why I am glad when games keep this on a small scale. When the whole game goes P2W, you just leave and stop thinking about it unless you want to be the whale financing the whole game.