Economic Research on MMORPGS: A

Quick Overview

BY ANDERS DRACHEN, MAY 6, 2014

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[This post was written in collaboration with Shawna Baskins and

Joseph Riley.]
In the past few years university-based researchers have
published a substantial amount of explorative work on MMORPG
economies the most complex virtual economic system that
exists in games. In this post we take a quick look at some of the
interesting research papers from the hallowed halls of
academia and beyond.
Virtual economies are an important feature for games. This is
true not only for MMOGs, but a key component of the design
and management of freemium and other types of games, as

well. In essence, games have had in-game economies since the

first NPC merchant, or purchasable power-up at the dawn of
game-time. The importance of virtual economies to games
means that this is a topic of intense scrutiny both in the
industry and in the university-based game research
environment, notably in recent years.
In the game analytics domain we often talk about virtual
economies in the multitude of different freemium games, but
the most complex virtual economies are found in MMORPGs,
where for almost two decades, things have just gotten more
and more complex.
Virtual economies can vary greatly in complexity. On one side of
the spectrum, we have the economy of Candy Crush Saga,
where users can buy boosters, but such boosters will have no
effect on other players. In such freemium games, we often talk
about core loops. These describe the production and drain of
resources in a game, focusing on the interplay between soft
and hard currencies.

The core loop of the virtual economy of The Simpsons: Tapped

Out is fairly typical for a city building game. Real money
consumption speeds up soft currency production. Soft currency
production offers diminishing returns, which encourages more
real money consumption. Many kinds of items are needed to
maximize productivity gains, and every resource has a built-in
sink. The system is designed optimally to soak in hard currency
(source).
In comparison, a traditional RPG like Baldurs Gate or The
Witcher can include players generating assets as they play the
game, and expending these assets on items and character
improvements. RPGs can also feature object creation systems
with gradual unlocking of higher-tier items. While games sold
under a retail model traditionally did not include the ability for

players to spend additional real-world money to purchase

virtual items, nowadays, it is increasingly common to have
ways for players to buy items in games that in the past would
not have had this feature, e.g. DLC equipment packs for the
Mass Effect-series.
At the other side of the spectrum, there are majorly
commercial, subscription/F2P-driven MMOGs that can operate
with complex, multilayered economic systems, with multiple
currencies and trading systems, providing players with a variety
of ways to generate and spend their in game, and real-life
resources.
A core loop model cannot account for the kinds of economies
that exist in contemporary MMORGPs, however. Integrated
virtual economies, combined with social and combat
mechanisms, form the backbone of MMOGs. Virtual economies
also serve as monetization mechanisms for many of these
games, increasing the need for right functionality to make them
balanced for all the stakeholders involved not the least the
players.

What is a virtual economy?

First, let us define a virtual economy (skip this section if you
have ever played an MMORPG). A definition based loosely on
the writings of Isaac Knowles and Edward Castronova, two of
the researchers working with virtual economies, states that it is
a set of currencies, goods and services that can be collected,
used and traded in the virtual world. Typically, this would
involve the users ability to produce these goods, as well as a
marketplace where they could be traded. Not all virtual
economies will have these features, but they do seem to be
common in MMOGs.

Three types of virtual economies in online games (source)

Trading is a general component of MMOG economies. The trade,
i.e. exchange of items between players, is covered by rules
established by the game company, and usually takes place in a
designated venue, such as an auction house or bazaar. Trading
systems can take the form of in-game auctions as well. These
are similar to the real-life auction houses, such as eBay, with
the main difference being that in-game auctions rarely contain
information asymmetries between buyers and sellers.

An infographic from the beta weekend of the MMORPG Guild

Wars 2, showing a breakdown of different economic indicators,
e.g. the distribution of wealth and currency exchanges. Note
the breakdown at the top showing sources of gold earned and
the multiple sources of income that exists in a contemporary
MMORPG (source).

Research on virtual economies

In the game industry, MMOG developers have taken the step
of professional economists(also here) to ensure correct design
and management of virtual economies, and avoid economies
that run out of control.
The interest in studying virtual economies has also emerged in
the academia, but for a different reason: while the game
industry is looking at the virtual economies from the
monetization and user satisfaction perspectives, for the
academics these economies represent an experimental
playground for studying human behavior, testing and
evaluating economic theories and dissecting economic
systems.
This sometimes leads to interesting results, for example
showing how real-world economic processes are copied in
MMORPG economies, and how design can disrupt them; or the
details of faucet-drain mechanics.
One of the earliest and seminal pieces of work focusing on
auction houses and virtual economies did not originate in the
academia, but in the industry. It was released by Simpson, on
Ultima Online. He described an environment with hundreds of
virtual items being exchanged via virtual auction houses, and
described the macroeconomic design built into UO from the
onset to facilitate economic flow. But he also highlighted nonplayer controlled economy, which led to Ultima Online
experimenting with player-run actions. These new, more open

economies formed the foundation of the feature in todays

MMOGs.
Whether real world economic behaviour is reflected in the
virtual world remains an open question. One of the main
contributors to the field, Edward Castronova, argued that
integrating real-life economics theories into the sphere of game
worlds must be done carefully. This is due to the
macroeconomic outcome of the virtual world being largely
influenced by design structure, parameters of which can be
different from those in the real world. Castronovas work also
noted that an aspect, which makes adoption of real world
aggregates easier, is the items relevance to equivalents in the
real world i.e. food, furniture, etc.
Two other noteworthy studies focused on the macroeconomic
behaviour in the virtual worlds. Morrison and Fontenla, studying
the economic behaviours of the player community across eight
World of Warcraft servers, noted that price convergence
occurred at all of them. Lohdonvirta, used virtual item sales
records to identify attributes that drive purchase decisions in
the virtual worlds.
In relation to the virtual world parameters being different from
those in the real world,Williams has reported differences in the
representations of gender, race and age in games as opposed
to real world populations. Another work, contributed by Szell
and Thurner, noted that although there is some evidence that
game societies might mimic those in the real world, for the
most part, it still remains an unresolved issue how social
networks operate to influence in-game economies.
Sony Online Entertainment started sharing data from EverQuest
II with a team of US-based researchers a few years ago, which
has led to dozens of publications. The work from the Virtual
Worlds Observatory includes dissections of player behaviour,
techniques for player profiling, social network analysis, activity
analysis, etc., and is well worth looking into.

Critique against the economics research in academia has been

leveraged by economists in the industry. For
example, Varouakis noted that studies often imposed their own
prejudices on virtual worlds rather than genuinely trying to
extract new knowledge. Integrating game design in economic
studies has also been advocated by Castronova, who suggested
that code is law. This means that, for example,
macroeconomic outcomes in a virtual world are largely
explained by the design structure, the parameters of which can
be different than the real worlds, and thus, care must be taken
when integrating real-life economics theories and models into
the domain of game worlds. Such models otherwise form
powerful tools for constructing and managing virtual
economies.

Summarising
Academic research in games can be interesting because it does
not need to justify itself in terms of for example driving a
games revenue. This means that blue sky/explorative topics
can be investigated, and this is one of the drivers behind the
increasing collaboration between university researchers and
game companies within the area of game analytics.
This post is by no means a complete overview of all academic
work on the subject of virtual economies, nor the many
interesting and useful presentations from GDC and elsewhere,
and readers are encouraged to delve deeper via the links
provided.
On a final note, it is unfortunate that much academic research
is hidden behind paywalls, as scientific publishers charge for
access to research publications. However, much can be found
via the personal websites of academics. Furthermore, in a
pinch, visiting a university library will grant access to the
material.

How to Cite the Purdue OWL in APA

Individual Resources
Contributors' names and the last edited date can be found in the orange boxes at the top of every
page on the OWL.
Contributors' names (Last edited date). Title of resource. Retrieved from http://Web
address for OWL resource

Angeli, E., Wagner, J., Lawrick, E., Moore, K., Anderson, M., Soderlund, L., & Brizee, A.
(2010, May 5). General format. Retrieved from
http://owl.english.purdue.edu/owl/resource/560/01/