MMORPG Economies Explored in Depth

Obscure Economist writes "The Social Science Research Network (SSRN, http://www.ssrn.com) has just posted a free download of "On Virtual Economies," a new broad-focused study of the market for MMORPGs. Think of it as a less descriptive, but more predictive, follow-up to my paper on the EverQuest economy of last spring. The link, for those interested: http://papers.ssrn.com/sol3/papers.cfm?abstract_id =338500. Comments and criticism appreciated. Edward Castronova, Associate Professor of Economics, Cal State Fullerton"

Comments

These games are very rentable

[Espectr0]

Since they are subscription based and need servers, piracy is cut down , almost all of it. What i don't approve is that the games cost full price like every offline game plus the subscription, which is not cheap at all.

At least anarchy online allows you to test the game for free

Re:These games are very rentable

[Hott of the World]

And yet somewhere, somehow, people manage to do it at no cost to the users. Thats just insane! I mean, with all the costs associated with running BATTLE.NET, I'm surprised that Blizzard is not bankrupt...

Re:These games are very rentable

[mewsenews]

There is a reason for the up-front cost plus the ongoing monthly cost; it's just odd that so few people seem to understand that running servers that can handle thousands of simultaneous players for months at a time is an expensive thing to do.

I disagree. I think developers need to decide whether they are selling a product or a service - and not both. I wouldn't mind the subscription fees as much if the client was free but I feel it's unfair to play both ends.

Jurisdiction of Virtual Economies

[thefinite]

Quote from abstract:

It will also raise certain constitutional issues, since it is not clear, today, exactly who has jurisdiction over these new economies.

Don't the games already dictate the control of these economies? MMORPG game makers decide the rules of the economy according to what they think makes them enjoyable. Granted, if you are selling EverQuest items on Ebay, then you are subject to U.S. economic laws, but why would any government care about the economic activities in a virtual world, except in areas that affect their own economies? There may be an answer to this I don't see. If so, what is it?

not gonna happen

[dirvish]

Virtual Economies will have to expand immensely to have any real effect on real economies. Sure, people trade some EverCrack stuff on Ebay but it is a miniscule amount compared to the rest of the economy. It really has no effect on the real world. How can a virual economy ever have something that is truly valuable? I can't think of an instance and I don't see one coming about.

No real value

[Anonymous Coward]

"It will also raise certain constitutional issues, since it is not clear, today, exactly who has jurisdiction over these new economies. "

Uh, it's pretty obvious, Sony (in the case of EQ) "owns" your gear and gold pieces, etc. There is no value to it - it's just 0's and 1's on their server, and when you sign up for an account, the licence spells this out.

Why does everyone have to take something fun (a game) and try to assign real life value to it? It makes MMPOGs less interesting when you know there are people who "cheat" by buying and selling items in real life. That's not the point of a game!

Re:No real value

[GigsVT]

Why does everyone have to take something fun (a game) and try to assign real life value to it?

Because people spend tons of real life time on the game, which is worth real money. After someone works 5 hours for an item, they expect to have some ownership of said item. That doesn't always work out, but subconsiously they feel they own it.

Re:No real value

[orthogonal]

Why does everyone have to take something fun (a game) and try to assign real life value to it?

"Value" is simply what somebody is willing to pay for something.

Obviously, people are willing to pay to play the game. They value the enjoyment they get from playing more than they enjoy spending that money on something else (or holding on to it). So they purchase a game subscription, trading real money for access to the game.

Some people value the status (or the ease, or whatever) that comes with a more capable "avatar", more than they value having real money, so they're willing to trade real money for game money (or experience points, or "lore" or "fungi tunics")

Recently a forty year old can of an artist's excrement was bought for several thousand dollars by a museum. It was "valuable" not for its potential use as fertilizer, but as "art".

A original copy ("original copy"? An oxymoron or not?) of the American Declaration of Independence was sold for over eight million dollars, despite the fact that anyone can download the exact text -- or a photo reproduction -- for free. Are the words valuable then? Not, apparently, as much as the context they are in.

Even real money is simply a social convention: its utililty for any use other than trade (its "intrinsic value") is virtually (pun intended?) nil. Real money is useful only insofar as people will trade goods and services for it. When real money is perceived as not being as useful for trade, its value collapses, and we have the super inflation exemplified by Weimar Germany or present-day Argentina.

Which is more valuable to you, a dollar or a month of game play? What if it's your only dollar, and you're hungry? Which is more valuable, a million dollars or a month of game play? What if you could only buy cans of artists' excrement with that million? What if you know you'll be dead in a month? What is more valuable, a million dollars or the Declaration of Independence? What if it's an electronic copy? What if it's the only remaining copy (electronic or not) remaining in existance? What is more valuable, the single remaining copy of the Declaration, the single remaining copy of the Bible, the single remaining copy of Moby Dick, the single remaining sequencing of the human genome?

What's the value, to me, of the last letter you even got from your high-school sweetheart? How much money would you charge me (i.e., what's the value of it to you) to sell me that letter, if I told you I planned to burn it?

"Value" changes with circumstances, with the surplus or scarcity of what you have and what can trade for, and with your, uh, "values". "Value" is what you can get for something, less what it's worth to you not to part with something.

Re:No real value

[GigsVT]

More interestingly, the free market may rule in every way.

Imagine this, the first MMORPG that actually has it's own auction site where players are even encouraged to trade game items for real money. Of course that creates all kinds of legal hassles, but some sort of in-game escrow would be pretty trivial to implement, reducing arguments.

The way I see it, in real life, money can buy you better equipment, etc, but it can't make you a better player of the game. When these games evolve to the point where it isn't centered around equipment (and the quest to get better equipment), but rather on real game skill, then is when we will see the really big things happen.

Re:So much simpler than the real thing

[Ryan Amos]

I think you miss the point.. Yeah, MMORPGS are geeky (and a waste of time IMO) but consider it a small-scale model for the real world economy and how the real economy might be under different circumstances. No, it's not the same as the real economy by any means, but it's an interesting sociological "experiment" (though more of an observation.) Besides, not everything needs to have a practical application. Some people just enjoy this kind of stuff. :)

Think stamps/baseball cards/collectables

[Brian_Ellenberger]

EverCrack may not have an "immense effect", but there are plenty of instances of pretty much worthless things gaining value because they are rare and people want them. Look at stamps. Little pieces of scrap paper with a face value of pocket change. How about baseball cards? Just cheap cardboard. The pictures and information on both are easily duplicated. So why in the heck do people pay hundreds or thousands of dollars for them?

Heck compared to a stamp an Axe of Power or a level 99 character seems much more interesting and useful for entertainment. As long as it is sufficiently rare and useful, people will attach some sort monetary value to it.

Brian Ellenberger

Eh? Are these people serious?

[Jon Erikson]

Despite the expanding popularity of games like EverQuest and it's huge array of derivatives and competitors to suggest that the "economy" (and those quotes are deliberate; to suggest that any of these games has anything like a real economy is patently ludicrous) is in anyway comparable to that of real-world markets is... well, just wrong. Any Economic 101 student should be able to tell you that.

As such any talk of jurisdiction over these "new economies" is just a pipe dream by over-addicted players; there is quite simply no such new economy at all, merely players (and sad, cheap addicted ones at that) within the current economy, trading their resources for ever more ephemeral rewards.

Indeed it seems like such talk of new economies is nothing more than subliminal advertising; trying to talk up the game to make it more important than it is. After all, it certianly suits the makers of the game if it's seen to be more "real"... even this sort of "negative" publicity is good for it since the sort of person that has such a pathetic life they get addicted to online games seems to be craving a reality of sorts, preferably one where they can overcome the crippling social, mental and physical deficiencies that plague them in real life. There is no genuine MMORPG economy. There's just a fringe of people who really need to get out more, trading within the regular economy on sites like EBay.

"Wooden game pieces do not...immersive experience"

[Eol1]

(pg 12) ... My ass. I have never in 9 years of gaming seen people more immersed in a game that miniature strategic gaming. These are people that will play the SAME game through hundreds on meticulous through months. Remember times where it would take 9 hours to do 2 rounds. This is immersion in all its details. If anything, you are more immersed as you actually have to think as opposed to everything being handed to you on a plate. Thing with online games and MMORPG's is people don't have to think, its immersion for the masses. Its 5-minute thrill in 10-minute worlds where everything is provided to you.

Star Wars: Galaxies

[RobinH]

I've been following the development of a new MMORPG, called Star Wars: Galaxies. The designers are trying some new concepts with the economies, and they really seem interesting:

1) Raw resources only exist in a set quantity. When a resource runs out, it is replaced by a brand new one, and the old one will never be available again. All the designs and items using the old material will become rares, meaning: a) designers stay busy, and b) prospectors stay busy.

2) You only get crafting experience when an item is *used*, not when it's made. Therefore, you are naturally motivated to make things people want, not whatever increases your skills the most.

I'm really interested to see how it turns out.

EQ Platinum is a tradable commodity like any other

[raehl]

The only question is how much real money is it worth. When you get down to it, buying EQ characters or equipment on Ebay is no different than buying a movie or videogame or shelling out $40 to go to Six Flags. It's paying for entertainment. Buy powerful character, be more entertained. Selling characters and equipment is the same thing: Providing entertainment to someone who is willing to pay for it. It doesn't matter that the entertainment in question is 1's and 0's on a server somewhere, or that there's no "sink" for it (i.e., a way for money to leave the game). If more and more EQ Platinum becomes available, like any other currency, it'll just suffer rampant inflation. Sony creating lots of platinum, or players exploiting bugs to create lots of platinum, is no different than Mexico printing up lots of pesos to pay off national debt. It just makes the value of the platinum/pesos worth less in dollars.

EQ money is the same as real dollars - it represents production of a tradeable product.

When people buy EQ "Stuff", what they're REALLY buying is the TIME of the people who generated that stuff (or more accurately, they're buying the time they now don't have to spend getting the stuff themselves.)

EQ Platinum *IS* money, moreso than real platinum. Can't do anything with dollar bills, can't do anything with EQ platinum, but people will give you stuff for both because they believe other people will do the same. That's where it gets its value - not because of any useful properties, but just because people BELIEVE it's money.

One of these days, people won't play EQ anymore, and EQ money will be worthless. You'll be able to buy billions of EQ platinum pieces for $1 because no one will believe they have any value anymore.

Its exactly the same reason you can buy millions of Afghans or Lira for $1. People stopped believing the money was worth anything, so you needed a lot more of it for someone to trade you a dollar for it.

My impression

[mao che minh]

I played Ultima Online of-and-on for about 3 years. My playing days ended a good year or so ago, but I spent so many hours obsessing over the particulars of the economy that much of it remains vivid in my mind. If there is one thing I can add to this discussion it's my belief that a "virtual economy" (like those in MMORPGs) can easily "run away" from the administrators of the game. The factors that give online economies their frailaties can not be applied to real world models.

When I first started playing Ultima Online, 10,000 gold pieces was a considerable amount of captial, and real estate of the lowest kind ran one roughly 55,000 gold pieces. Even with a considerably large user base, supply and demand of the various core resources (wood, cloth, ore) of the game was in a remarkable state of acceptable flux. Inflation was well controlled. The demand of "rares" (items that varied in degrees of difficulty to obtain) drove their prices high, but never to unreasonable levels.

This all ran smoothly, much like a real world economy of small nation might run. But then came factors that real world economists do not have to fret much over, factors that only exist in the virtual world. The most significant was that people started cheating. Specifically, a considerable amount of people found clever ways to mass produce gold by the tens of millions.

You might ask "why didn't the admins just remove all of the excess gold?". Well, they didn't know exactly who cheated, and therefore could not effectively enforce an across-the-board gold removal without losing valuable customers (where the real $$$ comes from). I stopped playing for a short period of time, and when I came back it was a new UO. Houses that were once 55,000 gold were now 1.5 million. Much sought over rares sky rocketed to values of 10 million gold (or more, I am told). New players (and long time players that decided not to cheat or purchase wealth off of Ebay) were now rendered "impoverished" for the duration of their UO life. Basic materialistic goals that players could pursue, goals that were promised to new players on the back of the box, were simply unattainable.

OSI, the company that runs UO, tried a plethora of schemes to make the economy bearable again. They failed utterly, and UO subscriptions continue to dwindle. What differentiates a make believe economy from a real one is the fact that people can do make believe things in a game. No one can dupe 1.5 million dollars out of thin air in the real world.

Re:My impression

[bbaskin]

>No one can dupe 1.5 million dollars out of thin air in the real world.

Actually, this is not quite true. Central banks have almost always done this. The Federal Reserve "creates" money out of thin air, buys government debt with it and thus tries to alter the various interest rates to what the Board of Governors desires. The central bank's control of the volume of dollars is nothing more than a monopoly on counterfeiting. This also shows that increasing the volume of money is the cause of inflation, both in the real world and the virtual.

The laws of economics apply to people no matter where they interact with each other and counterfeiting is still counterfeiting no matter who does it. It is a distortion of the economy and will eventually lead to its collapse. It's happened in the real world and evidently has happened online, too.

Inflation is evil, it is theft, it is a stealth "tax" (when used to buy government debt), and it is caused by government monopolies on the production of "money". Only a hard money system (much like an online system where people can't cheat) can save us from these problems.

Think about it, they don't call it "gold" in the games for no reason. It's been money for 6000 years all across the world until the beginning of the 1900s when governments banned its use and started cranking out pure fiat money. And look what has happened to its value. $1 today buys what 5 cents bought in about 1913, the year the Federal Reserve was created. Even at the "low" rate of about 3% inflation today (according to the Cleveland Fed) every dollar you earn today will only be worth 17 cents in 60 years. That's a tough hill to climb when planning for retirement.

Inflation is theft.

Bryan Baskin

Re:Gov't Jurisprudence in Virtual Economies

[Danse]

The only commodity being sold is the time that it takes someone to gather the plat to sell on ebay. Since the vast majority of us sell our time (and expertise or muscle as well in most cases) to make a living, this doesn't seem very different.

From my experiences...

[mraymer]

I've noted that with most MMORPGS, on eBay, the real money isn't in the items themselves, but in high level characters. This is probably because of the insane amount of time it takes to level. Basically, impatient players or players with lives (heh) buy the time from other players, so they can enjoy the high level gameplay without the time investment.

An exception to this would have been the Diablo II expansion right after its release. Accounts basically sold for the value of the individual items. I sold a single item (the Eaglehorn bow) for $1010 USD about a week after the release of the expansion. Of course, Diablo II has sort of been destroyed by hacks. Even if it weren't, graphically, the game looked old when it was released. Now, it just seems ancient.

I'm really looking forward to World of WarCraft.

Re:they appear real...

[MikeBabcock]

Comparing emotions to value is not ridiculous, as any psychotherapist would tell you; people pay a very large amount of money every year to be happy. Not to live, or to eat, but to be happy. Why is there so much more money in pro sports than roofing? Why are the expensive homes filled with entertainment equipment? You obviously weren't thinking 'big picture' with your comment; peoples' feelings, emotions and perspectives _are_ the reality we live, the reality _you_ live.