Simulated Economies in World of Warcraft

Although it might not be evident, I spent much of my teenage years playing computer games - particularly strategy and roleplaying games. In fact I sometimes believe that gaming has led me to my involvement with trading (i.e. the ultimate online game).

So when some of my friends at started telling me about World of Warcraft (WOW) I already had an idea of what it was about, and because I had played other MOOs and MMORPGs I was familiar with playing in an environment where there are other real players all playing on a game server such as EverQuest. When I started playing WOW, I appreciated the strategy and roleplaying possiblities immediately. However, recently I've discovered a new interest and that is watching the economics and marketplace of WOW.

What makes the WOW economy so interesting to study is that unlike many other computer games, there are enough human players to create significant economic shifts. After all, there are over 8 million players world wide. It's like a micro-world economy. Another interesting element is that unlike in the real world, there is no fixed quanitity of currency (currency is spawned whenever monsters are killed and there are technically an unlimited number of monsters). However, currency circulation is very different than the real world because each time that you buy something from a non-player merchant that currency is effectively taken out of circulation permanently. Thus, the only true trade market is the Auction House (AH) where players can post their extra equipment for sale and other players may buy it.

Interestingly, because of this in game market, market players have arose to provide certain market functions and of course have attempted to manipulate the market whenever possible (or not regulated by Blizzard). Such instances of this occur when wealthy buyers buy out a certain rare item and then repost it in the Auction house at higher prices (i.e. cornering the market). Eventually, buyers become fed up with high prices and new sellers arise looking to take advantage of such high prices thus bringing supply back into balance with demand.

Another WOW market phenomenon that has been occuring and has come under fire is the use of real currency to buy WOW gold. Usually this WOW gold is being "farmed" by underpaid foreign sweatshop laborers who run 9-12 hour stints making a few dollars a day. This gold is then resold to online merchants who sell it to gamers looking to improve their character without wanting to do the drudge work themselves. Metroblogging Azeroth has an excellent article on this that discusses the potential negative impacts on the WOW economy that I found particularly noteworthy.

After looking at how these simulated economy dynamics are there any relevant inferences that can be drawn about real marketplace? Well I think that the largest similarity I see is that there are informed and uninformed participants in both markets. Uninformed participants either directly or indirectly provide opportunity for those who are informed. Additionally, both markets experience market manipulation and illiquidity occasionally.

I'm sure there are other similarities as well as plenty if differences. If you have any thoughts on what simulated economies can teach us please let me know.

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