Econ in the News: Real Money, Virtual Economies

wow token
Virtual Economies are increasingly translating online goods into real cash, intended or otherwise.

With the rise of MMORPGs (Massively multiplayer online role-playing games) in recent years, revenue models have shifted from one-time sale of physical games to in-game purchasing, either in addition to buying the game upfront or in a “freemium” model, which allows basic gameplay free of charge but unlocks items or additional gameplay in return for real money. This has created big opportunities for new business ventures; one of my friends built a robust company by hosting Minecraft servers and creating mods for players willing to pay. Of the articles about these games in the news, I found the ones discussing the virtual economy of World Of Warcraft (WoW) some of the most intriguing.

WoW is a MMORPG created by Activision Blizzard in 2004. From a very broad overview, the game focuses on building up your avatar by fighting monsters, completing quests, and beating other players. Although the revenue model has historically been paid-subscription based, in April 2015 it was announced that players could purchase “WoW tokens”, each token being the equivalent of one month’s subscription, either in the real world for about $15 or using gold obtained in the game.

These new tokens provide a nice segue into the virtual economies that can rise in online videogames with massive reach. In WoW, tokens can only be sold at the Auction House for a price set by an internal algorithm that determines supply and demand (though I think Smith would argue the “invisible hand” does a better job), and tokens bought using in-game gold cannot be resold, which removes arbitrage opportunities. What’s more interesting in an economic lens is how this token provides an insight into players’ preferences. For active WoW players who are short on cash, tokens offer a way to effectively continue enjoying the game for “free”, with potential to save real money for other in-game upgrades. For wealthier players who have more money but less time to obtain gold, the token offers a new way to translate real money into in-game wealth. With an economic lens, one could examine the budget associated with time and money in relation to playing WoW. If the value placed on obtaining 20,000 worth of in-game gold has a greater opportunity cost than spending $15 for a token, the $15 are well spent.

Although not necessarily condoned by Activision Blizzard, there are enough loopholes in the game to allow the sale of gold, rare items, and even accounts for real money; in effect, the WoW token is Blizzard’s answer to the underground economy that has risen around virtual gold, offering an incentivized and legal route for players who have the means to afford it. In other MMORPGs, the virtual economy is explicitly tied to real currency. One famous example would be Entropia, in which a few years back one gamer sold his virtual real estate on an asteroid for $335k. These games create new markets that, even though the desired goods are little more than written code sitting in a server, are still subject to forces of supply and demand,

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