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ISSN: 1463-6697

Online from: 1999

Subject Area: Industry and Public Sector Management

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A cost-benefit analysis of real-money trade in the products of synthetic economies

Document Information:
Title:A cost-benefit analysis of real-money trade in the products of synthetic economies
Author(s):Edward Castronova, (Associate Professor in the Department of Telecommunications, Indiana University, Bloomington, Indiana, USA)
Citation:Edward Castronova, (2006) "A cost-benefit analysis of real-money trade in the products of synthetic economies", info, Vol. 8 Iss: 6, pp.51 - 68
Keywords:Cost benefit analysis, Game theory
Article type:Case study
DOI:10.1108/14636690610707482 (Permanent URL)
Publisher:Emerald Group Publishing Limited

PurposeMacro goals: To alert the telecommunications policy community to the emergence of persistent online worlds as a communications and policy issue. Also to provide game industry decisionmakers with solid economic research on which to base policy decisions. Third, to connect these two communities to each other, for mutual benefit. Micro goals: to conduct a solid cost-benefit analysis of a knotty problem in game economics: what to do about people who break the rules and use real money to buy game items (swords, wands, gold pieces, etc.)

Design/methodology/approachTraditional cost-benefit analysis. Consumer surplus analysis of externality effects, with a parameterized estimate of effects sizes.

FindingsReal-money trading acts as a negative externality on the game subscription market. Seems likely to amount to several million dollars per 100,000 users per year.

Research limitations/implicationsThe effects sizes are simulated only. More data from the game industry are needed before one can put a solid dollar estimate on them. Also, much of the material in the paper had to be really elementary in order for the results to make sense for both policy economists and game industry analysts.

Practical implicationsThe analysis indicates a prima facie case for public policy intervention to help shield synthetic worlds from the deleterious effects of the global gold farming industry.

Originality/valueInterest in real-money trade in gaming is growing, as indicated by the extent of online discussion by gaming scholars. Despite this, the literature on the economic and policy issues raised by the topic is limited. The article is an original piece of work that takes understanding forward.

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