[Literature] On virtual economies

On Virtual Economies by Castronova in 2003 points at the growing importance of VW on real-life society. Similarly to real-life, people live, consume and generate profit in VW. However, the software nature of VW means controlling the market is much more efficient for the regulating authorities. In cyberspace, the coding authority does indeed have the power to create and destroy any amount of any good, at virtually zero cost. What are the possible evolutions for these VW economies? How do VW economies influence RL economies?

Establishing an economic model of VW

Economists are forced to recognize that VW are not only mere entertainment, they also have a RL impact on people. Indeed, economists do not make any difference between real and virtual items or properties: if people are willing to incur large time and money costs to live in a virtual world, economists will judge that location to be lucrative real estate, regardless of the fact that it exists only in cyberspace. For economists, our behaviors follow constraints: we cannot have everything we want. The tighter these constraints are, the less choice we have. Presumably, people feel happier when they are less constrained. However, a MMOG providing too little challenge is not constraining enough, and people get bored quickly. Example/comparison: people prefer a 100-piece puzzle than a 2-piece puzzle. Castronova deduces a function regulating hours of game time for gamers based on the 3 following assumptions:

• People do things that make them feel happier
• confronting and overcoming challenges makes people happy
• higher rewards is preferred, holding challenge levels equal

This function shows several particularities. Gamer can be willing to pay for tougher constraints. Rich people can play because they can afford it. Poor people can play because they are not sacrificing very much income to do so. However, those not rich nor poor may be very sensitive to the impact of gaming time. Some people make money from their virtual activities: there is a substitution between Earth work and game time that depends, to some extent, on the financial rewards available in each. The economic phenomenon emerging is: Game time is a substitute for other consumption goods, and it is also a substitute for work time.

Many actors in the VW market of the future

The development of VW companies of the future can be classified in three domains: connections (Internet, wireless), interfaces (voice chat, body-motion detection) and content (media delivery services, game retailers). A monopoly may emerge because our time in virtual worlds is more valuable if everyone we know is in the same world [see Facebook...] and the more players a VW has, the more attractive it is. However, several reasons limit the possibility of a monopoly:

• People have different tastes, and they go in VW that fulfill their needs. A VW so big it would satisfy everyone would be too expensive to build and maintain.
• Congestion in a VW limits its number of simultaneous users
• It seems players get attached to their avatars as they get stronger and build their stories. However, incentives could be given to switch from a VW to another: in Ultima, you can directly buy your levels; in Camelot, you can start a new avatar at level 20 if you have already gotten one to level 50.
• the star phenomenon widespread in artistic markets: If a company designs a better game, it will attract players

The impact of VW on RL societies

The fact that labour hours that were once producing automobiles are now producing avatars does not mean anything about the level of wealth in society. Online economies do not belong to any country. Hence if economic activities move from RL to VW, countries would seem to be in recessions or depressions because state taxes would not bring as much as they did, and people would still use public infrastructures (roads, social welfare). Poor people may find VW attractive because they could earn more money in them than IRL. It would cost nothing to rich people to travel between RL and VW. New statistics and economic management policies may have to be developed

Who regulates VW economies? At the moment, game companies are not taken as legally responsible by RL law for what happens in their worlds - video games are speech. The EULA and ToS restrict users' rights, and profits drive the company. Hence, some players complain (more or less uselessly) on forum boards after patches and updates. RMT is another governance issue in which companies are the only ones to decide. Buying avatars or items from other players with real money frustrates the players who do not spend money in RMT. But players are not serfs. They have both voice and exit as options for resistance.

Bonus: differences between RL and VW economies

Unlike IRL, in VW ...

• It may make sense to control some prices.
• Players must have something to do or they will be bored: Work is good.
• increases in per-capita wealth [...] will lower the challenge level of the game: Growth can be bad.
• Avatars' abilities can change a lot over time and the number of connected avatars fluctuates.