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

So much simpler than the real thing

[Anonymous Coward]

If you could do an in depth study that was actually insightful about the actual economy, you would be hailed as a genius (you might even win a Nobel prize). As it is, you're simply a geek with way too much time on his hands.

MMORPGs are fantasy. They are artificially created by game makers and players are bound by the limitations that the game makers put in. If fake money is always created and never destroyed, then there is essentially an infinite amount of fake money and any item can eventually be attained. If there is a scarcity of money, then the game would be uninteresting because newer players would always be at a disadvantage to older players who have amassed more wealth and can thus buy more powerful stuff.

It's just a game. Play it for fun. Repeat until it sinks in.

Re:So much simpler than the real thing

[TGK]

Interestingly enough, US Banks have the power to create and destroy money.

The way it works is this. MyBank (insured FDIC) has a certain amount of money on deposit with its local Federal Reserve Bank (NY, Phillie, Whatnot). The Federal Reserve then sets a multiplier, allowing MyBank to loan out Z*Deposit where Z is a number chosen between 1 and however many Cherios Allen Greenspan ate for breakfast this morning.

MyBank then lends you that money. It just up and lends it to you. It didn't have the money to lend, but the Fed said it could so it does.

The key to the entire system is the ASSUMPTION that money is scarce. Or rather, that money has inherent value.

In the case of a MMORPG money is created (typicaly) by killing stuff. This killing of stuff is work, and requires the player (or a cleverly written bot) to spend time persuing this activity.

This time is equivilent to work. As long as people feel that they have to work to get money and that money in turn can be used to get someone else to work for them (or something else) the economy will keep going.

So in essence, as long as the player can not randomly create money (but can work for it), it really is just as valid as any other national currency (except perhaps the old Lira, which was so worthless as to require several million to buy a mellon)

Everquest Economy Threatened with Inflation

[Pave Low]

on a related note, check this out. funny stuff, art imitating life.

On art and games

[GigsVT]

people reveal that they are willing to pay money to be constrained.

This is an interesting observation. As many of us know, cheating takes all the fun out of the game for most normal people (15 year olds that crave attention and respect in an unhealthy way excepted). In art, self-imposed contraints are what makes good art. Without contraints, the games become meaningless.

I think when bugs are discovered in games that allow rampant cloning of items or free money to spread, is parallel to what would happen in society when and if we discover a way to make a "replicator" type device.

These games do make an interesting microcosm for sociologists to study. Identifing the differences is more interesting, since once we identify how it is different from the macro-society, we can use it as a model.

Don't be so sure

[g00bd0g]

If you have read the Diamond Age by Neal Stephenson you know about the Metaverse. I think it's fairly likely that something like this will eventually evolve from our current internet. At that point the virtual economy may very well become big enough that it will impact local and global economies in a big way.

Could Inflation threaten the EverQuest economy?

[microbob]

Could Inflation threaten the EverQuest economy?

A funny read on the BBC.

I'm sure some people take this stuff waaaayyyy to seriously.

Very true.. except..

[Inoshiro]

A virtual economy, like any economy, must barter in scarcity. After all, it is scarcity which forces the choices of economics on people.

The most obvious object which a virtual economy could manage is time. You can't turn time into an encoded form on a computer which can be played back at any moment. By farming out your own time that you are willing to spend on some problem, you could get some credit that would be useful to negotiate time off of someone else's hands for a task you need completed by a certain time. It'll be the ultimate in specialization, where you need only know one thing well, because you can use that skill to aquire the credits that you use to buy the time of other people who specialize is some task you need completed.

If this sounds a lot like your day-to-day job life, it is. But it breaks down if you look at it from a non-time perspective. Things that are not direct people services aren't scarce in a digital world. You need to move to something else for the creation and release of digital knowledge, something like the street performer protocol. Then the goods (which, when released, are not scarce) can have the creators of those goods still benefit.

Traditional models of scarcity and resource utilization do not apply in a virtual economy. Once one copy of something is released, infinite copies may be made at any point. The only thing you, as a content producer, can do is set how much you want to release that product. This is the next step (IMO) in the evolution of economic theory because it'll allow people to make things on their own, without a big corporate body (RIAA, MPAA) taking a cut off of everything. Prices will go down, and creations will go up.

Re:These games are very rentable

[Dirtside]

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.

The cost of purchasing the game box is there to offset the development costs of the game -- i.e. all the money spent paying the programmers, artists, designers, and managers who develop the game to begin with. For a modern, first-tier computer game, this process can take two to four years; all that money is invested in the project before the company gets a single dime from customers.

Now for a regular game, once the game launches, there's some followup (patches, fixes, etc.) but the amount of effort is small compared to the amount of effort that went into creating the original game. But with an MMO, once the game launches, the company is also providing servers for you to play on. Providing that service is an ongoing cost; you have to pay people to admin and maintain the servers, pay for new or replacement hardware, pay for bandwidth, electricity, etc. It's a significant chunk of change, which is why there's the ongoing fee. In addition, MMOs tend to have additional (free) content introduced down the line; the monthly fee pays for this as well (although full expansions are usually Sold Separately, and the development costs for the content in those expansions are paid for by the box cost... in theory).

AO allows a download of the client to test out the game, but if you want to play the game, you still need to buy a game box (in order to receive a registration key). Most MMOs don't have this option, since downloading a 1 gig+ client just to test would be an additional huge load on their bandwidth.

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.

Value Judgements

[name_already_in_use]

i can't think of an instance and I don't see one coming about

The whole point of value is that it is subjective. What one person would pay a lot of money for another would happily throw away without a thought. Clearly then these virtual economies are presenting value, albeit in digital form, to some people and there is nothing to indicate that this phenomenom will not continue to grow.

Value and quality are interesting topics for programming geeks and engineers alike, but the best book I have ever read on the subject is Robert Pursig's 'Zen and the Art of Motorcycle Maintenance', which should be made compulsory reading for any first-year computer graduate (IMHO).

Earth & Beyond economy

[Dirtside]

The economic model in Earth & Beyond is an interesting change from games like EverQuest. It's closer to DAOC's model, as I understand it (I'm not very familiar with DAOC though).

Basically, the best items are player-made versions of loot-only items. Players can make better-quality items than the NPC merchants sell, but the best overall items aren't sold by merchants at all, but rather are dropped off NPCs that you have to go out and kill. So player crafting is important, because it yields the best items; but hunting is also important, because in order for the crafters to make those items, they (or others) have to go out and kill monsters to get those items in the first place. A big problem with EQ's economy is that *all* the best items are dropped off creatures. The best player-made items are pretty good, but do not compare to loot items.

Gov't Jurisprudence in Virtual Economies

[limekiller4]

thefinite writes:
"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?"

If you think about the selling of "plat" (platinum) obtained from Everquest on eBay, you're basically talking about a commodities market and the people running the game are essentially printing money.

Re:Gov't Jurisprudence in Virtual Economies

[limekiller4]

Danse writes:
"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."

You are 100% correct ...but this qualifies for oil too. Or electricity. Or or orange juice or porkbellies. These are commodities. And they're regulated because if you do not, it is possible to manipulate the environment which will result in profit with no risk for the manipulators and assured loss for those not "in on the deal." Hence 'insider trading.'

Whether the item in question is lawfully obtained by the sweat of your brow has nothing to do with the problem. Everquest isn't regulated. An admin could, conceivably, give themselves or others plat. Yes, there might be internal safeguards in place, but are they adequate? Can someone code a script to do that work automagically? Or even worse, can the system be hacked outright?

The result of "printing script" (ie, money) is that it devalues the legitimate money and this leads to inflation and relative devaluation. In other words, if there exists 1,000 units of money in an environment and we both have half, if you can print yourself 5,000 units, we now have 6,000u of money in circulation and my lot is significantly devalued.

Granted, this is an extreme example, but it is only provided to illustrate the point.

Define "Real"

[Mahrin Skel]

As probably the only one in the thread who has designed a virtual economy from scratch and had a few hundred thousand people beat on it, I found the paper very interesting. I also work for the first company to get sued because we stopped someone from converting virtual money to the real thing. This stuff isn't hypothetical to *me*.

What is real, when we're talking about economics and communities? Is the community of baseball card collectors real? Are the economics of fine art auctions based on rational decisions?

People "live" in these worlds. They have friends, lovers, rivalries, and the *emotions* are certainly indistinguishable from "real". You may smugly sneer at the inconsequentialness of it all, but what would your ancestors of a few hundred years ago think of you? How many of you make a living directly producing something you can hold in your hands? How many of you have jobs you can't quite get your grandparents to understand?

How many people who read /. routinely hunt and kill their own food, or till the soil to grow the wheat for their daily bread? How few people actually make things *essential* to daily life in this modern age?

The worlds I build are virtual. The communities that appear in them are real.

--Dave Rickey

they appear real...

[mao che minh]

...and yet they are not. The commodity that you invented was real: the game, the software itself. The "world" within it is not.

Comparing emotions to the value gold is ridiculous.

Asheron's Call 2

[zaffir]

I'm in on the AC2 beta test (it's a free, open download at fileplanet), and they've taken the player economy to the next level - there are NO NPCs involved. You either get items from monsters you kill, or from ones you craft. And crafting is open to everyone - it doesn't require you to use skill points that could otherwise be spent in combat skills. This could be very interesting; it's a much more hands-off economic structure as far as the developers go.

Re:"Wooden game pieces do not...immersive experien

[Eol1]

And how does that compare to the single Star Fleet Battles campaign I have been in for 7 years now? Everythign is not just outside your grasp in everquest....you all start playing another game and bet your ass Sony will start making it in your grasp. The latest high level premade character packs you can buy from Sony are examples of this. The thing miniature games have going for them is once you buy them..they are yours, regardless of what the company wants or the economy demands. I have spent $20 and have enjoyed myself for years on that game (~8->12 hours a week).... how much have you blown on evercrack? Where will everquest be in 4 years when the popularity runs out?On to greater and better...where is all your valuable time spent, gone, useless. Sure there are dedicated players ever much as dedicated as real life hobbiest, but they can't support the game along. I dont' care if my games makers go out of biz or not, I can always play the game, now or 50 years from now. One of my favorite games to still play is Renegade Legion Leviathon ... FASA discountined this ~1993 and FASA itself out of biz ~1999 ... yet I dont' seem to have any issues *immersing myself in it*. Your whole enjoyment is driven my mass market economics. Evercrack can't survive a loss of population the way real life games can OR even MUD's. When you product is driven my mass market, your quality suffers and so do your hard core games. And of course people will move on, better graphics, faster games, better engines ... it doesn't end. You can stay still in the computer business. (Everquest is about to die itself...everquest 2 on the way...an upgrade == complete repurchase of everythign you already invested even if they have an import function. They will add somethign to make everquest 1 players go and buy everquest 2). My 700 page ruleset covers all I can and ever need to know to enjoy my games endlessly. Hard to upgrade minatures (well besides better paint jobs).

MMORPG ARE 5 min thrills w/ 10 minute worlds. Its the same reason chess (with a board) will be here 500 years from now and everquest will barely be remembered.

Re:My impression

[Anonymous Coward]

I played UO for 3.5 years. I was a beta tester, and was around on the Atlantic shard for the days when the game first started where evil was evil and PKing was a way of life. I liked it when their were great lords and dread lords fighting in dungeons, players were quite honorable, there was very little newb killing, and no duping. I was around for the great real estate crisis, which is why the houses went up in value. It had nothing to do with the gold being duped, it had to do with the fact that the land was filled with houses, people couldn't place more, so the demand went up for land, increasing the land value to what could be considered exponential proportions weekly. It went from small town house purchase to metro Toronto condominium building purchase. Eventually OSI decided to do a wipe of the land and allow people to re-place, which didn't work so well the first time, and the land still filled with houses, and real estate values stayed the same.

Then the patches begain.

Patch after patch OSI released made the game worse and worse. It caused more bugs and more problems, it probably caused the duping exploit. The original game was well implemented. It was the additions after that that made it worse. And once EA got hold of OSI, the game went right down the tubes.

You have to give OSI credit though. It was the FIRST MMORPG of its kind, and considering it was new territory they did pretty well. Everquest doesn't hold a candle to UO in gameplay or in world design. I played for 4 months and quit. It's just a medieval Quake.

-Diabolik

Not quite there yet

[Andy Dodd]

Currently, player-made items in DAoC cannot be the best in the game. Armor can have the best AF, and weapons can have the highest damage, but they don't have the magical bonuses that people REALLY want. As a result, especially thanks to the "epic armor" received after a quest at level 50, there's only a demand for 2 of the 4 tradeskills.

This all changes in 6 days, when Spellcrafting and Alchemy (The ability to give items magical bonuses and make potions) finally goes live. At that point, Mythic's original promise that players would be able to MAKE the best items in the game will finally become reality.

That said, DAoC's economy is a bit more robust than EQ's - The problem with EQ was that certain crafted items sold for more than they cost to make. This is what the free-money exploits take advantage of. In DAoC, EVERYTHING is a loss except for one of the lowest items, which will net you 7 copper per build. (Note: Macro this all you want, it would probably take a day just to make one gold, whereas a player could make that much in a few minutes solo farming.)

Also, DAoC has a couple of inherent "cash sinks" built into the game. While EQ's economy primarily consists of buying "rare items" that enter the game but rarely exit, probably 50% or more of the cash in DAoC's economy is used to buy wood.

Wood, you say? A key part of DAoC's endgame is realm vs. realm battle. Part of RvR is taking over enemy keeps and holding them.

Upgrading a door to level 5-6 usually costs a few hundred gold worth of wood. Holding a keep for two weeks against attacks can make an entire guild go flat broke. (This happened to my guild - People are just beginning to recover their cash reserves well over a month later.)

Who Cares?

[delus10n0]

If you're spending (say it with me) "real life" monies to advance yourself in a GAME, you are a loser.

And if your arguement is that this is for entertainment, well my friend, I only paid once for my copy of Soldier of Fortune II, and it's offered me endless hours of entertainment. Same with Half-Life.. Unreal Tournament.. Tribes.. WarCraft III.. Quake2.. etc..

I don't have to pay to advance my character or stats in these games. My level of fun isn't going to depend on whether I have some piece of "r4r3 ph4t l3wt" or if my character doesn't have a sword with +1 against ogres. I can just play, and not worry about such things. Nor do I have to pay a lame "monthly fee" to keep playing the game.

Consequently, EverQuest sucks the wang, and you all need to get lives.