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Sep 24, 2003



Money that is used to do one thing is not being used to do something else.

Given that this is not a boisterous, growing, booming economy, what did this 3.5 mill NOT get spent on? General entertainment like movies and CDs ? (Gotta spend all that money saved by filesharing somehow…) Does this "enhancement spending" reduce the purchases of new computer games? Hardware upgrades? Dr. Pepper?

Is it too small of a number to think that there might be a large subset within that made the same choices about what goods/services to forgo? Or are people choosing to work longer in the real world to pay for the ability to not work as hard in their VW?

It seems impossible to find out, but I am curious to know what real things are now worth less to a purchaser then a magic wand.


Speaking from a personal perspective, the entertainment value of these games on a per hour basis is very high. Go see a movie, drop $10 for at most a couple of hours. That same $10 buy you as much time as Mom will let you play in one month online, pretty much (actually, it's more like $13-15 monthly, but it's less than 2 movies). The initial cost of the software (not always present, but still usually) has to be amortized over the "legs" of the game, but if it's just 2 months, it all adds up to less than a movie a week, and the available play time is more than an order of magnitude greater.

That leaves a lot of "change" available in the savings from other forms of entertainment spending, I suspect.

I know I spend less on books when I'm heavily involved in a game, but I'm definitely an anomoly in the book-spending sample. And I suspect I make it up later, when back in the reading mode.


The first markets that will be affected by virtual world economic activities are goods in the male 15-30 demographic: sporting events, audio/video gear, auto accessories, clothes, music, and bar tabs loaded with lite beers and fried foods (sorry to spill the beans, guys, but I've been there, I know).


(disclosure: I work on Second Life) I'm most interested in concepts of value as true player-generated content becomes more commonplace. Currently, value is based upon developer-enforced scarcity yielding either true in-game value (a sword of might slaying) or community status (rare black hair dye). However, in environments such as Second Life players are creating their own brands with inherent social/aesthetic value plus there’s a vibrant trade in built/scripted objects.


I might also add magazines and cable TV to the list.

It is also going to be interesting if the labor market starts to feel the pinch. I'm wondering how many teens opted out of flipping burgers for flipping ice giants or stormtroopers this summer.



The value of the player-generated content is certainly a different beast than the computer-generated kind. In 2nd life a creator's greed or desires plays an important role in determining value, and playing an equally important role in reverse is the fact that you can't quite categorize the benefit a group of players receives from this content. And neither can the player, hence if he gets tired of the item he has a tough sell on his hands (if he could sell it). Every player is left to make a judgement call, judging every aspect of an object. On games with set items this judgement call is much-much quicker and reaching an agreed-upon price is straightforward based on availability/locality/benefit, all of which are known. In the case of 2nd life the availability is normally unknown (you don't know how long until you see the item for sale again, if ever) the locality is unknown (you can't pinpoint where it comes from) and the benefit is not clear cut (you don't know how much more 'stats' you'll get).

I think you're looking at a market similar to the antique market, that can potentially contain 'invaluable' creations, because they are so precious and unique a player would only be willing to part with it for 1 Million Linden Dollars as well as a market that can in some instances regard that same invaluable as 'old junk'.


Bruce Boston on markets: "It is also going to be interesting if the labor market starts to feel the pinch." Yes, absolutely. I think this will be the most serious long-long-run effect, the loss of labor input to Earthbound production.

hunter on value: "I'm most interested in concepts of value." For value, one has to review the concept that demand and supply are also functions of marginal valuation, and that marginal value, not absolute value, determines social value. It's all in Marshall (Principles of Economics, 1920) but also in your econ text, buried under a bunch of goo that doesn't matter at all.

Basically, the demand curve is also a marginal benefit curve, and the supply curve is also a marginal cost curve. Where they meet, marginal benefits (MB) of a good equal marginal costs (MC), and both equal the price. Hence, price is both the value of the good in use, and also the value of the good in terms of cost of production. The fact that these are marginal valuations means only that the value of the thing is determined by its incremental contribution to either use (MB) or cost (MC) - so, the value of water is the value of one more gallon, which isn't much even though all of the water we use is, collectively, worth a great deal. Similarly, the value of the Hope Diamond is the value of one more Hope Diamond, which is a lot, even though the collective value of all such diamonds is tiny (compared to the total value of water in our lives, for example).

Aargh! lecturitis kicking in!!! aaargh!!! must.... stop ... waving ... hands ....


Just a few minutes more lecturing, please? It has been some time since I lugged Econ books around CSUF and I can’t quite get a handle on a question triggered by this thread, and the answer is probably blindingly simple:

How does the purchase of items with RL money inside a VW differ from traditional RL purchases and how does it affect the RL economy?

Structured this way, in layperson’s terms:

1) Buffy gets a job cashiering at a burger stand. She is being paid by store owner to move burgers and put more money in the till than it cost the owner to make. As a party to this, the farmer got paid for growing the wheat for the bun, the bakery got paid for making and cooking it and the customer got their hunger sated. Easy to see that there is a broad impact.
2) Buffy instead decides to be a writer. She stays at home and writes then sells her work. She gets money, publisher gets paid, book printer gets paid, paper company whacks a few more trees, (or banner ads or subscriptions get sold), a librarian somewhere is paid to shelve it and enter it onto a list. The world gets more information to consume.
3) Buffy decides to farm magic swords. She makes $(see Julian’s charts) a week/month/year. Lots of happy time-strapped warriors. No ancillary parties to the transaction. Or does the monthly subscrip fee act as the working capital and raw material both?

I understand that as long as Buffy tears herself away from the screen long enough to go spend that money on RL goods that the impact is mitigated, but is there any sort of RL equivalent to the “narrowness” of RL/VW cash transactions? Is it the “too good to be true” business model or is a farmer growing wheat essentially an investment of human time in the exact same way her hours killing dragons are?

LOL, emergent curriculum, Prof!


You've touhed on something, actually. The narrowness of VW/RL transactions involves the length of the supply chain being narrower. In economic terms, though, what that really means is that the cost of production is lower. To make a magic wand on Earth, I need all kinds of inputs and lots of human time. Like, who is going to fill it with gunpowder and saltpeter? The same wand in cyberspace costs a little programming time, plus my effort to kill the Dragon of Zorg to get it. It seems that the production cost of the cyberspace wand is less.

One way of thinking about all this is as a reduction in the cost of an hour's entertainment. That certainly shows up in the price. For a $13 monthly fee (which, you're right,covers the cost of building and maintaining the world), you get hundreds of hours of entertainment.

So, I think you're on to something in the sense that VWs are a low cost provider of entertainment. Very nasty to the competition.

As for the activity of a sword-farmer: granted, both buyer and seller are active in the VW instead of the real world. This in itself produces the economic effects described above - they have moved to a lower-cost world. Their trade in swords is like people buying and selling popcorn inside the theater: given the group of people who are there, it becomes an ordinary market, nothing special. All the 'bite' comes at the moment when the buyer and seller decide to do their thing in Norrath as opposed to Earth. There's no bite when they actually do their thing there.


Not sure I understand all this correctly, but let me take a look from another viewpoint...

Humans need a certain minimum amount of entertainment in order to remain mentally healthy. The more of this entertainment they get for a lower cost from a new venue, the more the traditional venues suffer. So yes, traditional entertainment venues could suffer (unless they adapt to the shift in value propositions). But since Buffy the burger-flipper earns a fixed amount, and is unlikely to scale down her earnings simply because her entertainment is cheaper, she has extra cash she did not use on traditional entertainment. This extra cash will flow into all sorts of things, from your next home loan to a new car or more likely a new faster computer to play the game. The player's contribution to the gross per-capita earning hasn't changed, although the allocation of their expenditures may have shifted.

This is the case for the majority of the MMORPG-playing market - pure players seeking entertainment. Now, a small minority will start trading for RL money. Buffy who has now decided to farm the game instead of burgers still has to pay for her bills using real money. Even if she bought virtual stuff to sell at a markup her expenses are a severe drain to this cache of value. Real money, gained from outside the virtual world, must flow into the trading space in order to sustain her, or the system would dry out as all sellers are left with very real utility bills and very virtual trinkets. Sally is now co-dependent on this influx of cash, and fighting toe-to-toe with everyone else for a share of the pie.

By the way. While Buffy is busy selling her virtual stuff, she still has the same expenditures she had before, but now she has moved up the chain form low value-add products with a local reach into products with worldwide reach. I see here the creation of a new job position as a result of sustained economic influx into the virtual trading space and Buffy's willingness to leave the burger-flipping to someone else while she focuses on Orc-bashing. Of course it could be argued that Buffy's job opening is actually the shift from the position a cinema usher might have and that a cinema will no longer hire that usher because people go less to the movies. It does go much deeper, from the SFX guys and actors all the way to the movie producer. Perhaps we're witnessing the start of a shift in the entertainment industry. How deep it will go is anybody's guess... Anybody venture an estimate?


So I just wanted to touch on two items;

“Cheap Entertainment”
Clearly the decreased cost of entry to participate in VWs is expanding the market very quickly. However, I haven’t really seen many reports that ‘spending less money’ is the main motivator for joining a VW. Another obvious possibility is that some people actually enjoy VWs more than other forms of entertainment. In which case, I would expect expenditures to increase to reflect these feelings of increased value. Again, my guess is that a good number of people will be spending more, not less, by switching to this form of entertainment.

Some of this ends up in the form of increased computer equipment expenditures, some in consumption of DSL lines and other services. My guess is that because of this we will see an increase of VW/ISP and computer manufacture/VW partnerships in the future.

At the same time, I think we will see a huge variance in pricing with the high end going even higher ($200-300 per month by the end of 2004) and the low end going even lower ($1-$2/mo.). My guess is that at some point VW economies will start to mimic a Las Vegas like economy, a ton of nickel slots on the bottom and a select number of ‘high roller’ rooms on the top. As always in economics, this is good news and bad news for the industry. While starting a Hotel Casino in LV might seem like a no-brainer road to wealth, more than a few hotels have gone under trying to keep pace with the crowd. The fallout to-date in the VW scene is but a foreshadow of things to come.

“Selling popcorn to each other”
I am not sure that it is quite that simple. But I have yet to figure out a good model for the dynamics. So here are some of the questions. Does a virtual world increase in value with participation? I.e. are consumers willing to pay more for VW that has a higher number of participants and/or higher activity rate? What kind of value do Fansites add? So the question comes up, if members can create value, then what? And what happens when members and developers both know that members are actually creating value? How long before members start asking for a bigger piece of the pie?

Traditionally, VW companies have responded to the escalated value by the increasing prices and expanding the content available to hard-core gamers. This is working pretty good right now but has an assumption built in that might not be true, simply that, those members that are the most efficient at gaining wealth in a virtual world ‘want more content’ and not something else. I think it is this misconception that has spawned the current gray markets with people trading VW efficiency for RL goods and services. The next step that we are seeing is people participating in VWs not because they enjoy them to the extent that they are participating, but because that want to earn RL good and services through their participation in VWs.

It should be interesting to see how the economies progress, both inside and outside these virtual worlds. I wonder how long it will take before someone to realizes that for less that $2/hr (3rd world economy, equip included) you can hire someone work for you in Norrath creating $3 an hour worth of value? Does that work for a 10-person company? 100? 1000? I also wonder if we can still call it a game once this happens.


"we will see an increase of VW/ISP and computer manufacture/VW partnerships in the future."

Isn't the provider of one of these huge Asian games also an ISP?? I remember reading that on their website. Can't remember the name of the ISP/game (it wasn't Ragnarok).

"I also wonder if we can still call it a game once this happens."

As long as its possible to play the game while not becoming dependant on this influx, then they're out of the (game) picture. Better-stated: As long as the route to achieving the game's goals can be followed without their assistance, then the game experience remains there. Some might argue about the game experience integrity being compromised (immersion, suspension of disbelief, implicit code of conduct, preset behaviors, merit-based achievements, etc). I would argue you cannot expect 100% integrity in a multiplayer game; Heck, not even 50% integrity!

These sources might offer an alternate route inside the game, but as long as that alternative isn't the only (or a dominant) way to accomplish things, then it's only an issue to people looking at the meta-game instead of just playing the game.

The realization missing here is that these "providers" exist because there is a demand that would otherwise go unfulfilled. They are evidently bridging a gap between game machanics and the real world in places where these game mechanics have shortcomings that make it clash against our reality.


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