Virtual economy
A virtual economy is an emergent economy existing in a virtual world, usually exchanging virtual goods in the context of an online game, particularly in massively multiplayer online games. People enter these virtual economies for recreation and entertainment rather than necessity, which means that virtual economies lack the aspects of a real economy that are not considered to be "fun". However, some people do interact with virtual economies for "real" economic benefit.
Despite primarily dealing with in-game currencies, this term also encompasses the selling of virtual currency for real money, in what is sometimes called "open centralised marketplaces".
Overview
Virtual economies are observed in MUDs and massively multiplayer online role-playing games. The largest virtual economies are found in MMORPGs. Virtual economies also exist in life simulation games which may have taken the most radical steps toward linking a virtual economy with the real world. This can be seen, for example, in Second Life's recognition of intellectual property rights for assets created "in-world" by subscribers, and its laissez-faire policy on the buying and selling of Linden Dollars for real money on third party websites. Virtual economies can also exist in browser-based Internet games where "real" money can be spent and user-created shops opened, or as a kind of emergent gameplay.Virtual property is a label that can refer to any resource that is controlled by the powers-that-be, including virtual objects, avatars, or user accounts. The following characteristics may be found in virtual resources in mimicry of tangible property. Note however that it is possible for virtual resources to lack one or more of these characteristics, and they should be interpreted with reasonable flexibility.
- Rivalry: Possession of a resource is limited to one person or a small number of persons within the virtual world's game mechanics.
- Persistence: Virtual resources persist across user sessions. In some cases, the resource exists for public view even when its owner is not logged into the virtual world.
- Interconnectivity: Resources may affect or be affected by other people and other objects. The value of a resource varies according to a person's ability to use it for creating or experiencing some effect.
- Secondary markets: Virtual resources may be created, traded, bought, and sold. Real-world assets may be at stake.
- Value added by users: Users may enhance the value of virtual resources by customizing and improving upon the resource.
Within the virtual worlds they inhabit, synthetic economies allow in-game items to be priced according to supply and demand rather than by the developer's estimate of the item's utility. These emergent economies are considered by most players to be an asset of the game, giving an extra dimension of reality to play. In classical synthetic economies, these goods were charged only for in-game currencies. These currencies are often sold for real world profit.
Marketplace
The release of Blizzard Entertainment's World of Warcraft in 2004 and its subsequent huge success across the globe has forced both MMORPGs and their secondary markets into mainstream consciousness, and many new market places have opened up during this time. A search for WoW Gold on Google will show a multitude of sites from which Gold can be purchased. Real money commerce in a virtual market has grown to become a multibillion-dollar industry. In 2001, EverQuest players Brock Pierce and Alan Debonneville founded Internet Gaming Entertainment Ltd , a company that offered not only the virtual commodities in exchange for real money but also provided professional customer service. IGE had a trained staff that would handle financial issues, customer inquiries and technical support to ensure that gamers are satisfied with each real money purchase. It also took advantage of the global reach of synthetic worlds by setting up a shop in Hong Kong where a small army of technically savvy but low wage workers could field orders, load up avatars, retrieve store goods and deliver them wherever necessary. This lucrative market has opened a whole new type of economy where the border between the real and the virtual is obscure.Hundreds of companies are enormously successful in this newfound market, with some virtual items being sold for several million dollars, like Beeple's Everyday. Some of these companies sell multiple virtual goods for multiple games, and others sell services for single games. Virtual real estate is earning real world money, with people like 43-year-old Wonder Bread deliveryman, John Dugger, purchasing a virtual real estate for $750, setting him back more than a weeks wages. This virtual property includes nine rooms, three stories, rooftop patio, wall of solid stonework in a prime location, nestled at the foot of a quiet coastal hillside. Dugger represents a group of gamers that are not in the market for a real house but instead to own a small piece of the vast computer database that was Ultima Online, the mythical world in which the venerable MMO Ultima Online unfolds. Such trading of real money for virtual goods simply represents the development of virtual economies where people come together where the real and the synthetic worlds are meeting within an economic sphere.
Although virtual markets may represent a growth area, it is unclear to what extent they can scale to supporting large numbers of businesses, due to the inherent substitutability of goods on these markets plus the lack of factors such as location to dispense demand. In spite of numerous famed examples of the economic growth of Second Life, an amateur analyst in 2008 estimated the income inequity in Second Life's economy as worse than has ever been recorded in any real economy: a Gini coefficient of 90.2, a Hoover index of 77.8, and a Theil index of 91%. However, the application of these economic measures to a virtual world may be inappropriate where poverty is merely virtual and there is a direct relationship between in-game wealth and time spent playing.
The global secondary market - defined as real money trading between players - turnover was estimated at 880 million dollars in 2005 by the president of the, at the time, market leading company IGE. Before that, in 2004, the American economist Edward Castronova had estimated the turnover at over 100 million dollars based solely on sales figures from the two auction sites eBay and the Korean itemBay. A speculative extrapolation based on these quotes and other industry figures produced a global turnover figure of 2 billion dollars as of 2007.
However, the secondary market is unlikely to have followed the growth of the primary market since 2007 seeing as game companies have become better at monetizing on their games with microtransactions and many popular games such as World of Warcraft are sporting increased measures against player to player real money trading. Also hampering the turnover growth are the extreme price drops that has followed the increased competition from businesses in mainland China targeting the global secondary market. Furthermore, the global decline in consumption that followed the 2008 financial crisis would have affected the secondary market negatively as well. Post 2007 secondary market growth is likely localized to emerging markets such as Russia, eastern Europe, South America, and South East Asia - all of which are relatively inaccessible to international merchants due to payment systems, advertisement channels and language barrier. For example, South Korea is estimated to have the biggest share of the global real money trading market and it has there become an officially acknowledged and taxable part of the economy. In western countries the secondary market remains a black market with little to no social acceptance or official acknowledgement.
As for an actual economic model, secondary market turnover in popular player vs player oriented MMORPGs without trade restrictions such as RuneScape, Eve Online and Ultima Online has been estimated at 1.1 dollar per concurrent player and day. No model for more regulated MMORPGs such as World of Warcraft has been suggested. However, being a largely unregulated market and tax free market, any turnover figure or economic model remain speculative.