More Evidence Of Why Virtual World Economies Are Risky

from the inflation-inherent-in-the-system dept

We've already discussed the inherent dangers of basing a business model on the economics of virtual worlds. While there definitely is quite a bit of trade in virtual goods (often for lots of money), it's mostly based on ideas of artificial scarcity on goods that are effectively infinite. To drive that point home, Josh sent in an interesting story about a lawsuit between two founders of one such virtual world, where part of the complaint was that one of the guys effectively handed over the company to a third guy -- who planned to make money by selling the game world's currency, noting that once he controlled the company, he could just create an "infinite" amount of money in "a few minutes" and sell it at "below market" prices. While this suggests the folks in question had little sense of how basic economics works, it also highlights a pretty serious risk in these virtual worlds. At the same time that we're seeing Ben Bernanke struggling with managing the monetary policy of the US economy, for virtual worlds where there really is no scarcity at all, the temptation to simply flood the market without recognizing the consequences is just too great.
Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: economics, inflation, virtual worlds


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Anonymous Coward, 6 Feb 2008 @ 3:30pm

    Since the Federal Reserveit creates money out of thin air how is that any different?

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, 6 Feb 2008 @ 4:01pm

    your article fails so miserably, IGE resells virtual items, it doesn't run or found a virtual world, and Yantis is a giant douchebag who uses dupes and bribes to programmers to hide backdoors for him to exploit to ruin economies of worlds like everquest and any other game he can sink is grubby paws into to make a buck

    reply to this | link to this | view in thread ]

  3. identicon
    Replying Anonymous Coward, 6 Feb 2008 @ 4:02pm

    Re:

    It's the control of how much money the Federal Reserve put into circulation that (partly) contributes to it's value.

    reply to this | link to this | view in thread ]

  4. identicon
    Anonymous Coward, 6 Feb 2008 @ 4:14pm

    Re: Re:

    Whim is whim. There is no difference.

    reply to this | link to this | view in thread ]

  5. identicon
    Josh, 6 Feb 2008 @ 6:09pm

    Not quite out of thin air

    That any central bank or reserve can just create money "out of thin air" without consequence is incorrect. If more money is printed, than more will end up in circulation, and so its value will decrease. Simple economics. There is of course, more to this argument (involving other things that central and commercial banks do), but that's the gist of it. In virtual worlds, well, who knows....

    reply to this | link to this | view in thread ]

  6. icon
    boomhauer (profile), 6 Feb 2008 @ 6:35pm

    this is exactly...

    what ron paul has been preaching years. While the fed tinkers with rates and the money supply, the result is inflation that kills savings, which is especially harmful to retirees who no longer have income.

    You cant even hedge against this either... if you invest wisely and "keep up with inflation"... you still pay cap gains tax on your gains.

    The justification is that cheap money promotes faster economic growth by encouraging spending yada yada. But explain how stealing from any savings i have is anything different than just that: stealing.

    reply to this | link to this | view in thread ]

  7. icon
    Philip (profile), 6 Feb 2008 @ 7:52pm

    I didn't read the linked article, however, I do want to say if the guy that controls the game is smart, he would find a way to decrease the currency production. He would then essentially exploiting the game to increase profits. I don't know if that has any legal implications, but it is a way to make some serious, serious money.

    reply to this | link to this | view in thread ]

  8. identicon
    Straif, 7 Feb 2008 @ 6:50am

    I haven't played any of the traditional MMORGS since the original Everquest, (and perhaps many of the newer ones have addressed this issue) but there will always be people with more real-world money than time. If there isn't a legitimate way for a player to exchange money for in-game currency or items, then secondary markets (often against TOS, and occasionally scam) will flourish.

    However, if there is a legitimate way for players to buy in-game currency or items, then it provides a secondary profit stream for the game company. As long as it is done without upsetting the balance of the game it is a boon to the company and the players purchasing currency. And as long as there are a number of rare items that cannot be purchased directly with cash, the most successful or unusually lucky players also benefit as there are a number of wealthy players willing to buy the rare items.

    The best example of this is the game Kingdom of Loathing (www.kingdomofloathing.com). The game is free, but relies on donations for income. For each $10 US a player donates, they get a nifty item (in practice, it isn't so much a charitable donation as a means to purchase the item). That item, a Mr. Accessory, is useful in its own right, however, it can also be exchanged for the item of the month (this item is only available for that month--after that, if you want it, you have to buy it from other players), or other special items. The Mr. A can also be sold in the in-game market for a considerable sum (4 million meat last time I played--which was a while ago). Since there is an easy, risk-free way for a player to buy game money or items, there is little incentive for secondary markets (and, to the best of my knowledge, few exist). This keeps all real money going straight to the game company. Since there is no significant way for a player to exchange meat or items for dollars, in order to maintain the balance, the game company routinely has events designed to soak up excess meat and controlling inflation. Rather than enhancing the power of a player, they will frequently give the player cred or ego boosts--an untradable, but non-powerful item, a trophy, or their name on a wall. The game stays balanced, the parent company makes money, and the players have fun.

    reply to this | link to this | view in thread ]

  9. identicon
    Alimas, 7 Feb 2008 @ 7:15am

    I Never Got it

    I never understood why people would spend real money to purchase something inside of an MMORPG. Isn't that kind of like cheating? Doesn't it take from the game? Aren't the "goods" your purchasing potentially infinite in quantity and only existent before and after your purchase according to the whims of the MMORPG's controlling company?
    Isn't that kind of wasteful?

    I could totally see the free game donation thing, though.

    reply to this | link to this | view in thread ]

  10. identicon
    Cheddar, 8 Feb 2008 @ 8:59am

    Re: I Never Got it

    I buy online stuff for real money mostly because many of the more popular MMORPG's are designed to be time-sink's, and people like myself that are married with children can't spend the needed time in game to get the "stuff" we want. Throwing a couple more dollars to the game every month or so lets me keep up with my friends that devote hours a day to playing.. Cheating or not, it's either that or not remain able to play with my online buddies..

    reply to this | link to this | view in thread ]

  11. identicon
    Atheron, 16 Jan 2009 @ 2:02am

    Virtual Economies

    If you want to see this idea taken to its apex, check out Entropia Universe. The ingame currency is actually pegged at 10:1 with the US dollar.
    I actually work for the company behind it, so I'm not going to pump out the sales pitch on you here. I will say this though, that while there are genuine points here e.g. that there is no real scarcity in real world terms, there are a lot of misconceptions also e.g. that money can be created out of thin air without serious consequences to the economy.
    Also, I can understand that traditional MMO gamers may feel it's cheating being able to buy your way to the top, but there are very few that actually do that. In fact I think the real economy adds a very exciting extra dimension to the game play.

    reply to this | link to this | view in thread ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Make this the First Word or Last Word. No thanks. (get credits or sign in to see balance)    
  • Remember name/email/url (set a cookie)

Close

Add A Reply

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Make this the First Word or Last Word. No thanks. (get credits or sign in to see balance)    
  • Remember name/email/url (set a cookie)

Follow Techdirt
Advertisment

Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Discord

The latest chatter on the Techdirt Insider Discord channel...

Loading...
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.