Gold rush: what games can teach us about economics

Economics is defined in the Oxford English Dictionary as ‘The branch of knowledge concerned with the production, consumption and transfer of wealth’, all of this is still true when you delve into the virtual economy of video games.

Specifically, the games we will be talking about are MMORPG’s, as the vast network of players is what generates and props up the economies used in their respective games. Many players are taking advantage of real-world economic strategies in order to get a cutting edge in the virtual world and in this article we’ll be breaking down some of the key theories underpinning it.

For examples I will be using the economies of World of Warcraft and Runescape as, although there are many others to choose from, their age and complexity are a great reference point.

A 180 day history of total item trades on the Runescape market place

Inflation

Inflation in real world economics causes price rises nearly across the board and the value of currency to go down as a direct result, the virtual economies are if anything more vulnerable to this. With MMORPGs gold and other currencies are given out as rewards for quests, as drops from bosses and enemies or are generally farmed in the game.

This causes a few issues for developers after the game has been established for a while, as more and more currency is put into the games economy but very little is taken out. Both WoW and Runescape have fallen victim to this as there are less ways for currency to be taken out of the game compared to how easily it can be generated, this causes gold to lose some of its value over time.

Developers have to take proactive steps in order to hem this inflation in schemes called ‘Gold Sinks’. This is a way in which developers can remove money from a games economy without effecting individual players or gameplay.

The way Runescape countered this, amongst others such as actually taxing aspects of gameplay, was with membership bonds. The way the game works is that it is free to play with the majority of content locked off until the player pays a member’s fee of £5 a month. However, membership can be bought with real world money and traded within the game for in game currency. The single use aspect of this, combined with the market setting the price of the bonds, means that large chunks of money can be removed from the game whilst at the same time enhancing gameplay for those incapable of paying for it. An ingenious solution for a highly complex problem.

Shifting Markets

Just like real world economies, items in game have value that are directly influenced by demand, an aspect of MMORPGs that give them a unique edge over other games.

Players in these games are able to take advantage of the shifting value of specific items and there is potentially a lot of money to be made. The values of items can change for a multitude of reasons; for example a new quest that requires a certain item or new content that items are specifically beneficial for, but for savvy investors this can mean big profits for those who buy low and sell high.

One way of trying to get ahead of the market is to use price tracking websites, where you can see how much an item has shifted in price over a period of time. But some of the more unique ways are to look at developer notes and decipher from them which items will be gaining in price.

Although it is against game rules and protocol, the money made can be traded for real world money. This has been a persistent problem in MMORPGs, an issue that is difficult for developers to combat.

An image of World of Warcraft’s auction house, where all the trading is done

Market Manipulation

One of the most taboo ways players can get ahead of the market is to manipulate it out right.

The way in which players do this is to get multiple players to buy up all of the reserves of certain items or resources to artificially inflate the price of those items. Then when the market is over valuing the items they dump then into the market and gain the profits from it. This is a practice that is used more widely than developers would like, and unlike the real world, the rules are easily manipulated.

Conclusion

These are but a few of the ways in which virtual markets can reflect the real world and with so much money to be make both in game and in real life, these markets should continue to stay buoyant as long as the player base lasts.

By Ryan Pointon

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