Southern Bread

I’ve been trying to think of good examples of the business cycle theory since I posted about it a few days ago. A few came to mind, but I think the best one might be the phenomenon of “gold sellers” in online multiplayer games. These games, commonly called MMORPG’s, or just MMO’s are a great microcosmic example of what happens to an economy when money gets pumped into it from an outside source. Game developers are in a constant battle with these “gold sellers” to hunt them down and kick them out of the game. They not only annoy people by spamming the in-game chat system. But, more importantly, they totally skew the economies of these games by essentially counterfieting the in-game currency and selling it for real money in the outside world. But first, let’s look at some background of what an MMO game is, in case you aren’t familiar with this genre of video game.

If you aren’t familiar with the term MMORPG(or just MMO), it stands for Massively Multiplayer Online Role Playing Game. It’s a term referring to a type of role playing video game that people play from all over the internet in a shared virtual world. Some common ones are World of Warcraft, Lord of the Rings Online, Guild Wars, Warhammer, etc. These games place all the players in a single virtual world that usually consists of continents, countries (or regions) and cities just like any good world should have. In addition to mimicking the physical layout of a real world, these games also have a virtual economy in-game. These economies usually consist of direct barter between players through “trade” chat channels, and also, most MMO’s have an auction hall system. Think of it as an ebay for virtual items. The virtual currency is very much like a real currency. Lord of the Rings Online, for example, uses a three tiered currency of copper, silver and gold, with 100 copper equal to 1 Silver and 1000 silver equal to 1 Gold. You get money for completing quests, and for selling items you collect from your travels to in-game vendors.

So, what is a “gold seller”? These are groups of players that play for the sole purpose of collecting items in the game and selling them either to vendors(where the prices are fixed), or in the auction hall(where prices are bid by other players). Once they collect enough gold, they will sell it to real people outside the game on a website transaction, and then transfer that gold to the person’s in-game character. It’s important to note that these players only play to acquire in-game currency. They play for hours and hours and hours. And since the game regenerates resources and items on a timer, it’s pretty much like having a printing press and printing your own virtual money. Even if nobody buys on the auction hall, you can always sell it to an in-game vendor for a fixed rate. A quick look at the price chart for one of these gold seller websites shows the following price list:

That’s a lot of real life jack for some virtual money. Now, I’m not interested in the whole idea of the real world marketability of this type of service. I actually think it’s a brilliant idea on the part of these people. Gold sellers have been around for so long that it’s pretty obvious now that there is a demand for this type of thing. Even if the game companies hate it. It is what it is. But what effect does it have in the game’s economy? The first effect is that it creates a scarcity of already scarce resources. The gold sellers tend to “farm” or “harvest” rare items and resources in the game world, because these items command higher prices in the auction hall. This isn’t a natural supply/demand curve. The curve has been skewed by this artificial intervention. A shortage has been created. The other effect of this influx of “printed” money is that auction hall prices for certain items skyrocket. This isn’t just an effect of the reduced supply creating higher prices. It’s also the result of many players having a large amount of counterfiet money at their disposal. They can now outbid normal players at most every turn. Money is no object. This creates an inflationary boom.

One interesting thing that happens when this effect starts showing up in the auction system is that, as prices stay high, regular players begin to farm these items too, in order to get in on the action. This is sometimes the only way to get enough money to afford the items you need. So you now have normal players that have been lured into farming resources they don’t need, just to sell them in order to get enough money to afford other items. The normal flow of gameplay no longer provides them with enough cash. This leads to mini-busts as, periodically, the auction system will get flooded with a certain item and the price will go way down. Another item or resource will then become the new cash cow, and the inflationary boom will begin again.

Overall, it’s really interesting to see the parallels with real life. Players are drawn into the buying and selling of resources against their desire, just as so many people are drawn into housing, stocks, etc. in a real inflationary boom. At the beginning of the boom you feel like you might be missing out on big money to be had by joining in. By the end of the boom you almost have no choice. You feel like you have to get in the game or else you’re not going to be able to keep pace with prices going up. The scarcity of resources is there too. And the price of certain items, like labor and commodities, always skyrocket during a boom. Thomas Woods gives the example of programmers salaries during the dot com boom. Even companies that weren’t dot coms found themselves having to pay astronomical prices for programming labor because of the high prices being paid by the boom companies. If the other companies didn’t step up and raise wages, they would lose their programmers.