Do the "spoons" crafted in virtual worlds imply an act of production, of value? Assume so here for discussion. Can the underlying social nature of virtual worlds then imply an organizing system for production that is more flexible (and efficient) in some circumstances than traditional [Ed: ref below - NC] market systems?
The Economist (Feb 3, "the economics of sharing") states well the opening salvo to this thought process: information is a proven shareable commodity. Advice on /OOC is cheap. Fan websites and databases abound:
The characteristics of information—be it software, text or even biotech research—make it an economically obvious thing to share. It is a “non-rival” good: ie, your use of it does not interfere with my use. Better still, there are network effects: ie, the more people who use it, the more useful it is to any individual user. Best of all, the existence of the internet means that the costs of sharing are remarkably low.
Going the next step, (via The Economist) comes Yochai Benkler's paper ("Sharing Nicely: On Shareable Goods and the Emergence of Sharing as a Modality of Economic Production") that claims that because of our technological moment in history there are a class of physical goods ("shareable goods") whose excess capacity is better exchanged via sharing relations rather than secondary markets (examples used: bandwidth, excess computing capacity, etc.).
Yochai argues that "sharing market" is analogous to real world markets, though implying a different (social) currency:
(the) sharing of material shareable goods and peer production of software,
information, and cultural goods more generally—resemble an ideal market
in their social characteristics, but with social cues and motivations replacing
prices as a means to generate information and motivate action.
The argument is that such a "market" form can lead to a more fine-grained and fluid production system.
The modularity—of the incremental material contributions in shareable goods or of the work tasks in peer production—keeps individual actions discrete and fairly fine grained. This modularity again allows individuals to make decisions at the margin for each contribution or cluster of contributions, without undermining the whole and without incurring high social costs. These characteristics make the availability of resources—either labor or materials—relatively fluid.
Are analogies of virtual world design to real-world economic systems misleading? Shouldn't worlds be looking to build production systems that are more forcefully peer-to-peer, based on "social cues and motivations"?
Nathan,
Obviously, I agree with your last paragraph completely :-), but I'm not sure that adding sharing into the economic system makes it any less a real market. As Yochai points out, we see sharing in the real world and this is echoed within SL, where many creators share all or some of their creations (for both economic and social reasons).
Digital goods -- specifically those that created vice crafted (see explanation http://www.themis-group.com/uploads/Changing%20Realities.pdf) -- have the interesting property of potentially being nonrivalrous (although we give that choice to the creator) and may or may not have network effects. Most clothing has a limited (or even negative) network effect, but some (skydiving or furry outfits) also generate social connections and joint activities and so have positive network effects.
The transformation here that is so important to understand is that in digital worlds, the same peer production transformation that is changing certain kinds of content creation in the real world impacts *everything* in digital worlds. In the real world, the net and computers give me the ability to write, publish and distribute (see Dan and Greg's excellent coverage of this point in Amateur to Amateur http://papers.ssrn.com/sol3/papers.cfm?abstract_id=601808) but I still am limited by the limitations of atoms and economies of scale if I want to, say, make cars and compete with Ford. In digital worlds, largely split from the limitations of atoms, I could compete (perhaps successfully) with a digital Ford -- sure, they have more designers, expertise, money and marketing, but I no longer would need to build an automobile assembly plant.
This is one of the major points of the paper of mine that Themis put up. That this change in workflow within digital worlds is tranformative and allows amateur to amateur (or peer to peer in Yochai's terminology) production to go far beyond what is currently capable in the real world.
But, this is still a market -- in fact, it is the market optimizing for the conditions that exist, either on the web or in digital worlds.
Posted by: Cory Ondrejka | Feb 16, 2005 at 07:29
There is also Pixel Cost (a term I am adapting from Bruce's work at There), so while near nonrivalous virtual items still have a RL production/storage cost associated with it.
Additionally, there is a counter-thought that hoarding information may still hold greater value. It may be genetics, but someone's unique string of 010101001 may be of high value to another person.
Just some thoughts on the subject.
Posted by: magicback | Feb 16, 2005 at 07:45
Cory>
but I'm not sure that adding sharing into the economic system makes it any less a real market.
I too don't believe its any less of a "real market" - sorry if I wasn't clear. I do wonder though, and the interesting point of the question, if its a different *kind* of market. Which then suggests the other question - why don't virtual world market designs incorporate features that play to these market features more directly.
Posted by: Nathan Combs | Feb 16, 2005 at 09:48
I can think of two answers. First, many games do have non-market economic mechanisms. Second, that it's often not clear what non-market mechanisms would be a good idea, and the best option is to let players work that out for themselves.
The most obvious and widespread nonmarket mechanisms are groups and guilds. These may be different than you have in mind if you're thinking about free (as in beer) software or other commodities because grouping and guilds allow for a great deal of sharing, but allow exclusion. Still, they're important and not markets. Games which allow players to build towns or otherwise affect the world also allow for a great deal of sharing, which may or may not allow exclusion, depending on the rules.
And there's lots of freeform sharing. "Excess capacity" can be seen in high-level folks who are sitting around randomly buffing newbies. As you point out, there's information sharing via various chat channels. Guilds (and to some degree groups) make up their own internal rules (some market-like). Is it worthwhile trying to make formal game mechanics for such things? I'm not saying it's not, but it's a vague enough notion that it's not clear how to handle it. After all, formal institutions for open-source development seem lacking still.
There's the final game issue which isn't a problem for the real world, which is that in a game you (usually) would want to avoid letting people get too rich, so if sharing solves inefficiencies (due to transactions costs or whatever) in RL, then sharing might wind up being more of a problem for designers than a solution.
As to whether it's a real market, I don't think sharing makes things any less *real*, but it probably does make things less a *market*. It's always hard to know how narrow and technical to keep words, but open-source software development, for instance, is not a market as is traditionally meant in economics. A market doesn't necessarly require rivalrous goods, but certainly requires excludability, and probably requires actual money exchange.
Posted by: Timothy Dang | Feb 16, 2005 at 21:20
Timothy>
I don't think sharing makes things any less *real*, but it probably does make things less a *market*. It's always hard to know how narrow and technical to keep words, but open-source software development, for instance, is not a market as is traditionally meant in economics. A market doesn't necessarly require rivalrous goods, but certainly requires excludability, and probably requires actual money exchange.
I can see excludability, but how narrowly should we define "money" in this context (a virtual world)? Consider a currency of IOUs... start with an explicit denomination: my time - "10 minutes of twink services rendered for that item." Then what about a social denomination: social capital.
To spin the perspective here, just a bit. Which is a better container of value in a game world, and what is really being traded: platinum (a capricious artifact of faucets and drains and entertainment throughput) or reputation amongst and favors from other players, for e.g.?
If you take what I just said strongly, I'm not sure I believe it myself. However, I wonder if a bit more flex needs to be given when thinking about markets in these worlds?
Posted by: Nathan Combs | Feb 16, 2005 at 22:23
Look at the huge outcry on the news that IGE owns Cosmos / Thottbot. Thottbot is a typical example of sharing: People send their game data there, and everybody can see the game data of others. Everybody who participated knew that. And suddenly there is a connection to a real market, and people are outraged. Sharing only seems to be socially acceptable if there is no chance of somebody making a profit from it.
Posted by: Tobold | Feb 17, 2005 at 09:07
Nathan Combs> I can see excludability, but how narrowly should we define "money" in this context (a virtual world)? <...> social capital <...> Which is a better container of value in a game world, and what is really being traded: platinum (a capricious artifact of faucets and drains and entertainment throughput) or reputation amongst and favors from other players, for e.g.?
Yeah, in no way do I want to belittle the importance of social capital, reputation, social networks, etc. I'm just not sure it's helpful to call systems based on that "markets". That's because we have tools for analyzing markets. While those tools can be misleading sometimes even in the case of clearcut markets (for instance, the "law of one price" is frequently false), it's really unclear if you can apply them to social systems based on reputation, etc.
I'm not really up on social capital models, but it doesn't seem like you can treat social capital like currency. For instance, if I "buy" something from you with my social capital, it doesn't necessarily mean you now have that much more social capital.
Posted by: Timothy Dang | Feb 17, 2005 at 11:04
When I was in college I took a class on political economy. I forgot much of the course's content, but I do recall the terms fungibility and capital as in "fungibility of power" and "social capital".
In the financial markets, "price discovery" is a key aim of many firms (e.g. finding the true market worth of a particular asset). The problem with all of the financial models is that they have to assume that expectations are homogeneous (sp?).
I agree with Timothy Dang that the market should be use narrowly. There can be many container of value and the RL secondary markets are used for "price discovery" of virtual items. This is what lead to IGE's purchase of "asset valuation" tools.
People want to know who has the best loot, the highest rep, the greatest social cap, etc. So they will create measures. They may even trade these containers of value.
If nonrivalous good can enrich everyone equally, this only serves to raise the "poverty line" for everyone. However, everyone want to be above the line.
So to answer your question, Nathan, plat is still going to be the common, and therefore the best, container of value online. But as there is mudflation and other variances, cold hard real currency is better.
Posted by: magicback | Feb 17, 2005 at 11:35
Oh that was just my 2 cents. Not that I am an authorative voice or anything :)
Posted by: magicback | Feb 17, 2005 at 11:37
Tobold wrote:
Look at the huge outcry on the news that IGE owns Cosmos / Thottbot. Thottbot is a typical example of sharing: People send their game data there, and everybody can see the game data of others. Everybody who participated knew that. And suddenly there is a connection to a real market, and people are outraged. Sharing only seems to be socially acceptable if there is no chance of somebody making a profit from it.
It's kind of a Free Rider problem both ways. Players can use Thottbot without contributing data. But IGE (and Blizzard) can get a Free Ride from contributors as well (although it's arguable that they're not Free Riders when they're paying for the bandwidth).
It's interesting that the offense only goes one-way. Especially when it goes towards the people who made the whole thing possible.
I bet the players who are upset about the connection have stopped contributing data, but are still using the Thottbot site. I bet they don't see anything wrong with this, either, and will complain bitterly if the site gets shut down or is no longer as accurate.
Posted by: AFFA | Feb 17, 2005 at 23:45
Looking back, I fear I'm being overly pedantic. It's tricky because they're aren't enough words to describe what I think Nathan wants to describe. "Social Networks" is certainly one phrase which applies in some contexts, but only some. So if something isn't a social network and doesn't clearly fit narrow criteria for a market, but involves exchange/production/sharing of stuff/services/information, what do we call it?
There's nothing terrible about calling it a market, except that I fear it will lead to trying to analyze it as one would analyze a narrowly-defined market, and find that the tools aren't up to the task.
What kinds of things were you thinking of for game worlds? Were you thinking of building in systems for people to cooperatively make swords which then could be used by anyone who wanted to pick one up? (Like a "white sword" program?) Would something like this be supported by formal game mechanics, or should it just be expected to arise anyway? (I'm remembering one time in UO where I armed myself and earned some gold as a newbie by following around this guy who was turning an entire forest into stacks of crossbows. Very neat stacks, which he abandoned as he moved on to the next tree.)
Posted by: Timothy Dang | Feb 18, 2005 at 00:30
I see Timothy and Magicback's point about the danger of overloading existing terminology - ie "market", and have been looking into other related literature (ie"gift economies") I don't yet have a good alternative for "market" as intended here, in case anyone else does, would love to hear it.
Posted by: Nathan Combs | Feb 18, 2005 at 09:41
Nathan, how about the "social exchange"?
Or "formal" economy vs "informal" economy.
There has always been informal economy, a segment of transactions that occur outside of standard measureable economy. Secondary markets would be considered "formal" while the exchange of value/favors via gifting would be considered "informal."
Economy, the term, is a grab bag that is not the best term to use, but is better than market (where I assumed the players do come to the marketplace to transact).
Informal, the term, is also a grab bag term that is not the best term either, but do imply that the exchange of value is not structured (e.g. creating an in-game or out-of-game function to facilitate transactions).
We talk about commoditization, commercialization, appealing to the masses, etc. What we are really talking about is going from the back-room deals to open-market deals.
Yochai is probably talking about collaborative efforts for a common goal, like open software projects, which make sense.
But when it comes to thinking about virtual world economic designs, it'll depend on the goal.
Posted by: magicback | Feb 18, 2005 at 11:41