Big Money In the Virtual World

by Dual Income No Kids on May 4, 2007 · 0 comments

If you’re like us DINKs, you’ve probably heard about the informal economies that are sprouting up around many popular on-line multiplayer computer games. Basically, the main idea here is that some on-line games like Everquest, World of Warcraft or Second Life are so popular that people are willing to spend money on goods and service related to their game play. This phenomenon goes under a couple of names, “synthetic economies”, “fantasy economies” or “virtual economies”.

There are several interesting dimensions to these virtual economies. First, in some ways, they parallel brick and mortal markets. For example, rarer goods in virtual economies tend to command higher prices. If you surf over to mogs.com, a website selling characters from the multi-player fantasy adventure game World of Warcraft, you’ll see that higher level characters fetch a significantly greater asking price. Also, it seems that for some games, buying male characters is more expensive than female characters, suggesting that gender inequalities are reflected in the virtual world. Finally, some problems like crime and inflation are also present.

Second, mainstream economics has largely ignored these virtual markets. For example, Edward Castronova, the first economist to seriously look at this topic, initially had a hard time getting published in peer-reviewed academic journals. Most of the time his stuff got rejected because mainstream economists did not really understand how to value virtual goods.

While we DINKs aren’t experts, it seems ignoring these markets is a mistake. Virtual economics can be big business. For example, Second Life users reportedly engage in $500,000 worth of transactions per day. Other media reports suggest that in China, some companies exist simply to generate goods and services in high demand in these computer games, such as farming “gold” and “avatars” to sell on secondary markets. In short, virtual economies are becoming big business. It would be silly to write them off.

Now, what are the implications of this for personal finance? First, it would make sense to keep a eye on computer game companies which incorporate these markets into their corporate architecture. It might be possible to charge transaction fees to improve corporate profits. Second, if you’re a hard core gamer (I’m sure some of you are), you might actually be worth more than you think. Your level 70 World of Warcraft character might not be a badge of neerdyness after all. Rather it might be worth cold hard cash on the open market!

Happy Gaming!

Best,

James

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