Virtual economy exists based on players need for entertainment. This is the main difference between real world economy and virtual economy. It lacks the physiological needs of human such as food, water, breathing, and sleep. It still forms an economy as it satisfy basic characteristics of economy. There are supply and demand involved. Following will be discussion on the fundamental characteristics of economy aspects.
As in a real economy, there are factors affecting the virtual economy. The factors are influencing the demand and supply of the goods. The law of demand states that, as the price increase, quantity demanded will decrease and vice versa. Players will demand goods that they feel will give them more value, and therefore the price is actually set by themselves. The economy in game runs automatically as long as there are still players trading goods. I have chosen a Massively Multiplayer Online Role Playing Game (MMORPG), Mosiang Online as my main example for following online game discussion.
In Mosiang, goods can be grouped into 3 classes:
a, Normal goods. These goods can be bought from game NPC and usually their prices are fixed. These goods includes hp pot, mp pot, clothes, weapons, and low level skill books.
b, Enhanced equipments. These goods are normal goods being combined and power up to a better stat. For example, the probability of creating a high damage weapon is very low. Therefore, this category of virtual goods become valuable. For instance, weapon can be combined from a normal level 5 katana to a level 5+1 until +9 katana. The higher value it combines, the higher the damage goes. Second stage of enhancement is the power up of equipment. After katana is combined to level 5+9, the player can power up the katana again to have *1 to a certain limited value at the back (level 5+9*45).
c, Cash item. This supply of goods are sealed virtual items which can only be bought from the official website. These goods are only usable for a period of time and will be expired after few days. Company earn real cash from the trading of virtual goods. These items are supplies that enable players enjoy the game more. One example is,town teleport, which is used for the players to change map whenever and wherever they like. Usually players need to travel from one map to another by running or flying skill. When they have town teleport, they can save a lot of time and use it for leveling instead. The cash items can be bought at a fixed price of real cash, that is, using certain amount of points to exchange for an item.
Normal good's price is fairly stable. The goods are uniform and can be get from game NPC. If the price is higher than the NPC, then the quantity demanded will be 0, however, if the selling price is lower than the NPC, the quantity demanded will increase as the price decrease.
Enhanced good is the focus of main economy activity run amongst players. Following the creation and destroy of goods, the value of currency will fluctuate. In the game, as player character's level increase, the demand for more powerful equipment will increase, where the demand for lower level equipment will drop as the season passed. As a game player's observation, when majority of players stay at what range of level, the price of certain range level of enhanced goods will value more. When majority of players moved to a higher level, the value of the goods will drop. Like the level 5+9*45 katana, it will be worth at 10m when majority of the players ranged from level 20 to 25; then it will drop to 5m when majority of them moved to the level range from 40 to 45.
The last category of virtual goods, cash items, are introduced by the official company. The price of the goods fluctuates with the exchange rate of the game currency. If the value of game currency becomes higher, then the cash items will be sold cheaper in game, vice versa. For example, when the players do not value much of the game currency, then the cash items will be sold very expensively in game money. Because the game currency can be easily collected, the players have much supply already, they have to get the real cash item in exchange of higher value of game currency. The town teleport discussed earlier, is worth at 5m when the game is stillat an earlier stage, where not many players are rich in the game; today, the town teleport requires 20m as game currency is easy to earn and many players have become rich already.
As discussed above, the price of virtual goods can be affected by different factors in different situations. More detailed discussion will be updated. =)
Thursday, September 3, 2009
For Blog Discussion - Virtual Economy
7:44 PM — shirley — Labels: For Blog Discussion
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8 comments:
Hi Shirley, I like how you describe about the virtual economy in your blog.
My question here, do you think that virtual economy is same as (or maybe part of) e-commerce, in which people are able to purchase items online as well as any activity related to e-money?
In your introduction post regarding the virtual economy, you mention that "In China, it was popular in practice to use virtual currency in exchange of real goods and services". I wonder will virtual economy be implemented by other country in the future. Because so far, the virtual economy is only take place in the internet and especially in MMORPG games...
Looking forward to read your upcoming post...have a good day!
-Dy-
Hi, Shirley! Nice post there, I like your example on Mosiang. I never have chance to play Mosiang because my graphic card unable to support the game, maybe I will try it someday. =) In your blog post, you’ve give a clear explanation regarding on the use of virtual currency and also classification of goods. I believe that most of the online games have a virtual economy and an in-game currency to trade goods or services in the game. As you have stated in your introduction post, virtual currency is being used to exchange with real goods or services. In some instances, the weapons or armors that are meant to be used in the online have been sold in real cash term. In fact, there are full-time players who are making profits by doing this especially in China. One of the most popular forms of virtual currency used in China is “QQ coins”, offered by Tencent QQ – China’s most popular instant messaging client. QQ coins are initially used for purchasing items for their online identity but now are being used to exchange for real goods or services.
According to the recent article written by Thomas Claburn (2009), China has banned the use of virtual currency in trade of real goods and services to limit its possible impact on the nation’s real financial system. The Chinese government justifies the practice of banning the virtual currency for real trading is to curtail gambling and other illegal online activities. They alleged that the use of virtual currency for real-world transactions makes it an ideal way to conceal transactions where it allows an organized crime to launder their money.
Apart from that, the Chinese government also worries that the virtual currency for real trading would affect their ability to control the money supply. As explained by Professor Castronova, a telecommunications professor from Indiana University where he said that “As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers” (Indiviglio, 2009). Individuals may also utilize the online game or virtual world to escape from paying tax.
To curtail the use of virtual currency in real trading, the Chinese government has issued new regulations where it makes it eligible for all enterprises that issuing virtual currency or providing virtual currency services to register with Chinese authorities at the same time keeps a record for their activities. The new regulations limit the ability of issuers of virtual currency from being able to provide platforms to facilitate virtual currency trades between users. It will also limit users’ ability to purchase real goods or pay for products or services provided by another enterprise.
Reference:
Claburn, T 2009, China Limits Use of Virtual Currency, United Business Media LLC, viewed 27 September 2009, http://www.informationweek.com/news/internet/ebusiness/showArticle.jhtml?articleID=218101859.
Indiviglio, D 2009, Is Virtual Currency A Real Problem?, The Atlantic Monthly Group, viewed 27 September 2007,
http://business.theatlantic.com/2009/07/is_virtual_currency_a_real_problem.php.
lily~~wat do u mean by "Company earn real cash from the trading of virtual goods."? u mean..players of mosiang will spend real money just to pay for the virtual goods?? the real money that we are using everyday for shopping one??omgg...
Teddy,
Virtual economy is closely-related to e-commerce. If not, I believe the virtual economy will not flourish in such an amazing speed. The attraction of generating real profit is there.
Players purchase e money and use them to order virtual items online. The items (actually is only data) is directly credited to their account and they can use it directly in the game.
MMORPG is not only popular in China. In other countries, Second Life, Evony and Zynga are popular online games which brought in tens of millions of revenue for the company. It is not difficult to figure out the cash comes from. Players are willing to spend anywhere from $1 to $10 (seem relatively small to the user) to be used in game. These microtransactions when added up, can be very lucrative business.
http://www.pixelsandpolicy.com/pixels_and_policy/2009/09/virtual-economy-booms.html#
Yes, you’re right Aida! Some players are willing to spend real cash to buy virtual goods or equipments for their avatars in the online game. One of my friends, who is addicted to the online game had spent few hundreds RINGGIT MALAYSIA to buy the armor, weapons and some other equipments for his avatars in the game. According to IGE Ltd, a virtual-currency trading company stated that the online games players will spend approximately $1.5 billion on virtual goods and services in 2007.
In my point of view, I think that it’s not worth to spend so much money in the online games because it’s really a waste! In Mosiang, for example, players can buy the armors, equipments, weapons and etc using the virtual money that they earned in the game. As mentioned in Shirley’s post, these types of goods are categorized as Normal Goods.
So, why they want to spend real cash to buy the cash item? Some of the players especially those highly addicted to the games who are interested in gaining levels fast, and getting the most out of their gaming experience. Hence, the most effective way to do this is to access to the cash items. Is spending money on online games worth it? It’s depending on players, some think that it is worth to do so and some may not think so.
Reference:
Gilson, D 2007, Even better than the real thing: sweatshop gamers, virtual terrorists, avatar porn and other tales from the digital frontier, CBS Interactive, viewed 7 October 2009, http://findarticles.com/p/articles/mi_m1329/is_3_32/ai_n27219076/pg_3/?tag=content;col1.
omggg...i cant believe that la~~wat the hell people use real cash real money to pay for items in the virtual game??? not worth la~~ wats the point for doing so?? isnt it is juz lik throwing the money into the sea? cant get back anything..paying just for something that u cant touch cant smell cant eat cant use etc.i reli reli cant understand...wat for???
btw,y don ppl use "fake" money to pay for those "fake" items then? y real money buy fake things? cannot fake money buy real things? lolllxx
There are people spending fake money to earn real money as well. If u understand well the structure of the virtual economy, you can earn money too.
One of my friends in MoSiang for example, he bought a top 1 id in the game and he used it to earn back more money. He spent over RM3000 on the id. Then every month by spending about hundreds to maintain the top 1 status (mainly on paying daiwan's salary & some cash items), he can earn RM1000++ every month. Because the id's good status, he used it to combine weapons and win guild wars. With the game money earned, he sold to players who are interested at market exchange rate. Then when he enter into workforce, he sold the id for RM5000++.
So, it depends on how u play the game. The person illustrated above spend his money wisely, as he know how to play the game, instead of let the game playing him. XD
Good discussions here!
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