Virtual economies
Unlike real economies virtual economies exist only in cyberspace. Virtual goods are traded for virtual money which may or may not be linked to an actual real world currency. Today we will examine a virtual economy that exists within the popular online game World of Warcraft (WoW).
The currency used in WoW is the gold coin. Smaller denominations include silver coins (100 silver = 1 gold) and copper coins (100 copper = 1 silver). The gold currency is essentially floating and is not officially tied to any real world currency. There are some sites that will sell you previously earned gold in-game for $US however this is against the terms of service and is outside the scope of this article.
The reason that the WoW economy is considered floating is that there effectively is an endless supply of gold. As the enemies in the game constantly re-spawn every few minutes there is an unlimited supply of them. When a player kills an enemy they will be rewarded with a small amount of gold and possibly some items to sell. As a result new gold is being injected into the economy whenever a player kills an enemy which happens all the time. New gold is also being created when quests are completed or items are sold to computer controlled merchants.
To keep the economy under control gold must be removed. This is done through repair costs, talent respecs, items bought from computer controlled merchants among other things. The makers of WoW were smart enough to ensure that to keep a balanced economy the players are required to "farm" gold to maintain their level of game-play. Farming gold is typically done through daily quests, searching for raw materials or making and selling items from the different professions. As these gold making activities are not as enjoyable as other parts of the game the theory is that most players will simply make enough gold to get by. As a result it is a self balancing system, if more gold is needed then players will have to perform more of the mundane gold farming tasks.
If a rare and valuable item drops from an enemy it has minimal value if sold to a computer controlled merchant. However it is significantly more valuable to other players. As a result a lot of items are put up for sale in the in-game Auction House (AH). The AH in itself does not generate money, gold is simply transferred from the buyer to the seller and a small transaction fee is removed. However due to the complexity and depth of the AH it is worthwhile investigating how it works.
When a player wants to sell something on the AH it is a simple case of listing it (with a small fee) over a set time period. A starting bid price and an optional buyout price are also set. If the auction is successful then the money is mailed in-game to the player. If it was unsuccessful then the item is returned. It may sound like a simple system however at any one time there may be tens of thousands of items for sale on the AH. We will examine three different types of product in greater detail.
Ingredients
Ingredients are primarily raw materials that are gathered from around the game-world. They have no use in themselves but can be used to make other items in the different professions. For example the Blacksmithing profession can make armor but requires raw ingredients such as gems and ore.
Consumables
Consumables are any items that can be used up. The majority of these are potions and flasks. Different types of potions restore mana or health while flasks boost your characters abilities for an hour or two. These are primarily used on the harder parts of the game where every advantage counts. These are typically the 10 or 25 man raids that can last several hours.
Enhancement
These items enhance your characters weapons and armor permanently. Special armor kits and enchantments can be quite beneficial but also quite expensive.
A selection of these three groups were chosen and tracked on the AH on one server to see how the economy and market works. Shown below is the cheapest AH prices for these three groups over one Saturday.
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The enhancement items barely change as these items are not purchased as often as the other two groups and as such have a more stable market price in the short term. We can see that ingredient items are fairly spiky but there is a downward trend over the day. This makes sense as players start the day farming for ingredients to sell on the AH. As a result more and more players will start to undercut each other so they can make a sale. The spiky nature of it is due to large amounts of ingredients being bought (by profession makers) and sold in a short time span. The consumables dip slightly then climb in price during the early evening. As a lot of players may have commitments during the daytime most large scale raids are done in the evening. Some players will grab their nightly raid consumables just before a raid thereby driving up the price.
The prices were also tracked during the week, once in the morning (8am) and once in the evening (8pm). You can see from the two graphs that the ingredient items are still fairly unstable but overall all three group are generally higher during the week. This is typically because not all players will be playing on weekdays. Sever logs show that the busiest time is at the weekend which is when the greatest competition is. Note that by Friday the price has been driven down in anticipation of the weekend game-play.
Much can still be said about the economics of WoW but hopefully this small taste of it will lead to an appreciation of the complexities of this virtual economy.
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