Economics of virtual worlds

The Washington Post has caught onto a phenomenon that we have reported on before, namely how the economics of virtual gaming worlds have intersected with the real world:

increasingly popular online role-playing games [called MMORPG–massively multiple online role-playing games] have created a shadow economy in which the lines between the real world and the virtual world are getting blurred. More than 20 million people play these games worldwide, according to Edward Castronova, an economics professor at Indiana University who has written a book on the subject, and he thinks such gamers spend more than $200 million a year on virtual goods.

Virtual goods are those items, whether a sword or a character, that have been created online but are now sold in actual markets, such as eBay. The iconic example was an island that sold last year for $26,500US. This article has “photos” of the island for would-be real estate speculators.

I know how the financial exchange takes place in the real world but I always wondered how the exchange took place in the virtual world. The Washington Post article explains:

At one typical currency-exchange Web site, the MMORPG-Exchange, the current rate for Star Wars money is $24 for 5 million Imperial credits — about enough to buy a fast speeder bike. Put in an order via PayPal, and a green-skinned delivery guy will, within minutes, pop up inside the game to hand over the money in one shady corner of Mos Eisley, that corrupt city on Luke Skywalker’s home planet of Tatooine.

(Why journalists treat this phenomenon with wonder and view the sale of virtual goods are any different from the sale of most stock instruments like derivatives is beyond me. That’s normalization for you: stocks are normal; virtual swords are weird.)

The article mentions two other websites (if only they’d do the work and provide the links!): Game USD that tracks the value of virtual game currency against the US dollar (the site is cool because it’s so prosaic). allows you to purchase a variety of products across the online gaming spectrum (a credible site because it doesn’t “dupe, exploit or farm”).

The article by The Washington Post probably came about because of the new book by Castronova, an Indiana University Bloomington professor. Called Synthetic Worlds : The Business and Culture of Online Games it covers how online computer gaming has become a lucrative part of the worldwide entertainment industry.

See our previous posts, about Sony launching its own virtual goods auction site and the impact of gaming on Chinese culture. Apparently, when reporting on the sheer size of these massively multiple player games, neither the reporter nor Castronova checked the Guardian newspaper article, which reported that there were 40 million game players in China alone.

One final intersection of the virtual and the real world mentioned in the Washington Post:

After Hurricane Katrina, the operators of EverQuest II assured more than 13,000 members in the Gulf Coast region that their virtual property would be protected and preserved until they could resume playing.

2 Responses to “Economics of virtual worlds”

  1. WOW Gold says:

    What would happen if say your account gets hacked and you lose all of your characters items and currency. Or what if the game servers go down and all data is lost. Or what if you get accused of breaking the TOS of the game and your account is terminated.

    If any of the things above happen you would lose all of your hard work and time your spend building up your character and in game virtual items and money. Plus if you happen to spend real world money on anything that to would be lost. The way most TOS agreements are worded the gamers really have no legal recourse if any of the above does in fact happen.

    I think if a company came along and offered a players account incurance policy it might really catch on.