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Economics in Online Gaming

Posted by on May 26, 2015.

We’ve come a long way from Pong. Those first rudimentary steps of gaming quickly turned into strides, and what was an abstract collection of shapes on the screen has turned into entire fully-rendered landscapes, realms, worlds, even galaxies. Combine these advances with the growth of worldwide connectivity, and you get MMOs – Massively Multiplayer Online games. Gamers can and do spend large chunks of their real lives maintaining an online existence. In many cases, this even includes a virtual livelihood. Money makes the world go round, and these worlds of imagination turn with imaginary money.

But even as something with no substance, this money is not without value in the real world. ‘Virtual’ as the currency may be, the time, effort and even ingenuity it takes to accrue large amounts of it are very real. When a player is faced with the choice of spending dozens, even hundreds of hours of gameplay to earn the in-game money to develop their character further, or simply paying a sum of real money to achieve that instant gratification, the virtual gold can start have an impact on the real economy.

Although the economies of MMOs are, in this way, not entirely isolated from real life, they still have their own independent structure. Without that one, small link to real life, they would still be self-sustaining. This allows them to be a strange microcosm of our real world’s economy, and by examining both the differences and similarities presented in these games, many people and organisations are able to gain more insight into economic problems and solutions.

It is important to understand the differences between an MMO’s built-in market and the player-controlled market. The former is entirely static, or at least so until the developers decide to change it, while the latter is free to fluctuate with no central administration. The game market, which we might think of as the NPC (non-player character) market, is based on fixed-price transactions; when you buy an item from an NPC merchant, your gold is removed from the game world, as is your item if you sell it. The price required or offered by the merchant for goods is static and not open to haggling. When two players trade between each other, however, not only do the items and money remain active in the game world, but both parties need to agree on the fairness of the trade. This creates two entirely different economies. It also sets this genre apart from more traditional games, as most non-MMO titles simply don’t allow players to trade outside of the NPC market.

Most early MMOs had a basic approach to trade between players, much like a primitive barter system. When two players agreed to trade, a sub-window would open allowing each party to present gold and/or items until both agreed on a fair trade. This system is certainly serviceable, and even fits into the lore of medieval-fantasy themes. It also requires no administration from the developers, being 100% player-managed. It does, however, hugely favour more experienced players, or those who are willing to spend time researching. It’s very easy for newer players to end up paying far more than an item is worth, or be persuaded to sell a rare item cheaply.

More recent titles and new developments in older games offer alternatives to this system, or opt for a completely different basis for player-to-player trading, such as World of Warcraft’s Auction House, or the Black Lion Trading Co. of Guild Wars 2. These centralise the player-to-player trading, and create a more competitive atmosphere for sellers of goods, but they can also lead to somewhat dubious practices and attempts to manipulate the market.

Whatever the trade system may be, all of these games suffer from the same problem that plagues the real-world economy: Inflation. It’s far from the only issue worthy of discussion in MMO economics, but it’s certainly the most difficult and widely-debated one. For all the problems rapid inflation causes in real life, a game-economy’s small size, fluidity and different basis only makes inflation hit harder.

Because of the player/game duality found in MMO markets, inflation is a particular nuisance with newer players. Generally, the most profitable and useful items on the player-market are restricted to very late in the game and require a high-level, well-equipped character. Outfitting your character with good gear can require a substantial amount of money, and the most efficient way of making money is to pursue the high-level items. This can create a glass ceiling effect, especially in long-running games, where players must spend inordinate amounts of time to gain enough money to break into the profitable areas of the game.

Even something so basic as a glitch in the game’s programming can lead to catastrophic inflation. In 2013, World of Warcraft suffered an unfortunate coincidence of two glitches, the exploiting of which led to a mass increase in money circulation comparable to that of the old Hungarian pengő, one of the most disastrous cases of hyperinflation in history. Firstly, a simple coding oversight allowed players to trick the game, gaining rewards from opening loot bags without removing the bag from the inventory. A rather literal case of being able to have one’s cake and eat it.

Secondly, a problem occurred with the game’s auction house. Whether it was a simple exploit of a programming bug or a case of hacking was never discovered, but many players were able to sign into the in-game auction house from multiple devices. Normally, this would be impossible, and wouldn’t have been a problem but for a related glitch that meant any purchase made from a mobile device while double-logged in would have no impact on a character’s gold. This meant that not only were the exploiting players able to purchase any item for free, but also that the price would still be added to the seller’s account, effectively creating a gold-duplication glitch.

Because some of the benefit of these errors went to innocent players who had no intention of exploiting the game, Blizzard (WoW’s developer and admin) decided that it couldn’t justify doing a server rollback. While they did permanently ban some of the players who had intentionally abused the errors, this still left a massive spike of gold in circulation, as well as a nosedive in demand for rare items as so many people had obtained them easily. While this event did not effect all servers, the inflation was irreversible, and the effects on those economies are still relevant even now.

The most common and effective tool to combat this inflation is known as a ‘gold sink’, or possibly ‘credit sink’, ‘dollar sink’ or anything else to bring it in line with the currency for that game. The gold sink is a broad concept, and refers to any method employed by the developers to remove large amounts of in-game money from circulation. One common gold sink is non-tradable cosmetic, luxury or ‘prestige’ items aimed at high-level players. By offering certain items at a fixed price and restricting them to the NPC market, developers can ensure that a certain amount of money will be removed completely from the economy with every purchase.

The trouble with such gold sinks is that they weaken in effectiveness over time. They help to slow down inflation but they do not eliminate it, and no matter how slowly the value of in-game money is decreasing, given enough time even the most exorbitantly-priced gold sink item will be easily within the financial grasp of many players, the price becoming a mere drop in the ocean.

In general terms, although a way to completely halt inflation has yet to be found, anything that keeps player-to-player trading tied to the fixed prices of non-player merchants helps to slow it down. Guild Wars 2 makes an interesting case study with their approach to player-to-player trading. Rather than the older convention of a simple 1-on-1 trading menu, GW2 uses a more sophisticated, open-market model. The Black Lion Trading Company replaces any direct trading with a centralised, transparent marketplace which also functions as a gold sink; all transactions are ‘taxed’, reliably removing a certain proportion of all money exchanged from gameplay entirely.

However, this system has its own problems. The market’s economy, allowing anyone to see the offered prices and requested costs of goods and buy or sell instantly to the best offer, is 100% transparent. On the surface, this sounds like a good thing, but it enables insider trading to anyone who knows the mechanics and can use google. Even today, this is less than 100% of users. This has led to an odd clique of meta-traders; people who ‘flip’ goods on the market based on the recorded supply and demand patterns. This is a hardline capitalist’s paradise, enabling those savvy enough to simply cream gold from the market, without producing or making use of any of the goods they trade.

The interrelation of the real world economy and MMO economies is an interesting subject, and also brings some cause for both concern and hope. It very much deserves an entire article on its own merits (stay tuned for next month), but one aspect that is more of an issue in the game than in the real world is that of premium currency. For all the time and energy spent combatting inflation, many MMOs offer a service to the player that directly and instantly inflates the in-game economy; selling gold for real money.

When a player is faced with the mountainous task of earning gold, it can be tempting to shell out a little slice of disposable income on simply buying it directly from the publisher. Since money is an infinite resource in online games, this is simply spawned on purchase, and does not come out of anyone’s pockets, so on the surface it seems like a harmless transaction. But this adds gold to in-game circulation, doing nothing to address the inflation it causes. Each transaction is a small but measurable erosion of the value of the in-game gold. However, given that this option arose as a response to third-party ‘gold farmers’ – players who would illegally offer to sell money and items to other players, hoarding wealth away from others in the process – perhaps it’s the lesser of two economic evils.

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Submitted in: Expert Views, Josh Townsend |