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

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.

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)

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.

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.

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

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.