High level players fight at lower levels, because there is no one for them to fight at their own level, so discouraging them with less win-money and such wont be effective (most of them are rich anyway, and don't spend what they have to upgrade, because they already have good items for that level).

Restricting them to fighting within 5 levels of their own will leave them having no one (or very few opponents) to fight with, and they'd just leave the game.

The only solution to this that I can see, is to reduce the difference between levels, and between normal and rare items.
e.g, a high level playing at lvl20 will have mostly lvl20 items.
A fist timer playing at lvl20 will have a range of items from lvl20 to lvl15.
If a lvl20 item is twice as powerful as a lvl15, then yeah, the high lvl is going to win.
If the lvl20 items were only 1.1 times as powerful, then the fight would be fairer.

The whole reason why this situation happened in the first place is because of the way too expensive items at shop and not enough earnings per battle and level up.

If the item prizes would be lowered and credit rewards increased then low level players would be able to afford better per level items.

Let's see how things are right now,
When i leveled up to lvl38, i got 9000 credits as level up bonus. Which lvl38 items i could get from the shop for that 9000? Almost nothing.
Lvl38 body costs 98.000, cheapest lvl38 weapon costs 30.000. Oh, i could only buy "Rocket Storage 9" for 8.400 and that's it.

The another thing that caused this situation to happen is way too fast leveling up system.
I'll get 100xp per winning a full battle, it only takes me about 15 wins to level up.
So, by the time i have enough money to buy that lvl38 body, my player level would be 45 or so. If i'd also want lvl38 weapons, i'd level up some more before i have the money to buy much lower level items than my player level is.

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Aeacus