The spending in the game should be regulated by gambling laws and so-called booty boxes, which are completely prohibited for children, say MPs.
The industry's UK trade panel responded that it would "review these recommendations with the utmost seriousness."
However, the MEP's committee had accused some of those who had spoken of a "lack of honesty and transparency".
Free video games often encourage players to buy virtual loot boxes containing an undetermined amount of items to improve gameplay.
Some games have online marketplaces where players can trade or sell these items.
The Digital, Culture, Media, and Sports Committee on Addiction and Immersion Technologies was hearing stories of young adults who had gambled debts of several thousand pounds. Jagex, the company behind the online game RuneScape, admitted that players could spend up to £ 1,000 a week or £ 5,000 a month.
However, MEPs noted that the industry was unwilling to take responsibility for intervention if a player spent too much money, or even putting a figure on how much was too much.
And some had been "intentionally dull" in answering gameplay questions that MEPs needed to know to better understand how gamblers dealt with games.
Without attribution, they sometimes found it difficult to obtain complete and unambiguous answers from the representatives of the gambling industry who had appeared before them, especially when it came to answering questions, what data they collected, how they were used, and psychology How games were developed.
"Social media platforms and online game makers are working tirelessly to attract more and more attention, time and money," said Collins.
"Their business models are building on that, but it's time to be more responsible with the damage that these technologies can cause to some users."
In response, Dr. Jo Twist, Managing Director of UK Interactive Entertainment: "The video game industry has and will always put the well-being of players in the center of our actions.
"The industry does not deny that finding a balance is a problem for a minority.
"That's why we strongly support efforts to improve digital literacy and work with schools and caregivers on educational programs."
But Mr Collins said the games industry should contribute financially to an independent exploration of the long-term impact of games.
"Gaming disorders that are based on excessive and addictive gambling have been recognized by the World Health Organization," he said.
"It's time for gaming companies to use the vast amounts of data they collect about their players to do more to proactively identify at-risk players."
MEPs also called on social media platforms and game makers to set up effective age verification tools.
Currently, both rely on an honesty system, and as a result, there are a large number of underage users in social media and playing games.
Loot boxes should not be sold to children, but earned as a reward for playing, MEPs said.
"Dropboxes are particularly lucrative for gaming companies, but they are costly, especially for problem gamblers, and are potentially harmful to children," Collins said.
"Buying a booty box is a game of chance, and it's high time that the gambling laws are adhered to.
"We urge the government to explain why loot crates should be excluded from the Gambling Act."
International concerns over plunder boxes are growing, and a US Senator is demanding that they be banned and that the Belgian government decide they violate the Gambling Act.
China has limited the number of loot boxes that players can open daily. Sweden is also investigating them.