The Economics of Online Gaming

A Player's Introduction to Economic Thinking

Andrew Wagner

• Publisher: Business Expert Press
• Year: 2020
• ISBN:
  9781948580922
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The Economics of Online Gaming covers basic economic concepts, unique economic issues, and general economic themes. This book is made from the connections that the author saw when he compared his experience inside a video game with what he learned through a formal study of economic theory.

Set in the Massively Multiplayer Online Role-Playing Game (MMORPG) of Eternal Lands, it follows the true story of Mr. Mind, a gamer who builds a business inside the game world that he calls RICH. This business grows from a small start-up to an unregulated natural monopoly that abuses its market power by intentionally losing money to drive competitors out of business.

RICH becomes so influential that it breaks the market process with a unique case of regulatory capture. Through this story, the book demonstrates how economic thinking is absorbed by experimenting inside an online video game.

The Economics of Online Gaming covers basic economic concepts, unique economic issues, and general economic themes. Each of these topics begins with the context of a story and continues with an explanation of the economic theory behind it, finishing with a relevant real-world connection. It supports economic theory in an emotional way that cannot be shared through math or charts or graphs.

Appendix B provides a comprehensive outline of ideas for teaching and discussion in each chapter.

PART I

The Market

CHAPTER 1

Hunting Rabbits, Picking Flowers

I poofed into Eternal Lands (EL) as MrMind178, a 16-year-old high school student, with two of my younger brothers, j_wag17, who was 14, and robo2917, only 12, sometime in the summer of 2004. We landed in Isla Prima (IP), the small “newbie island” where players are introduced to the game. The game did not have any guides that were easy to follow, and it did not explain what we were supposed to do. It didn’t even tell us how to ask for help. The best we could do was explore the area and try to figure it out on our own.

After a few hours of walking around, occasionally chasing down the small animals that lived on the island, we eventually went inside a village tavern. Inside the tavern was a tavern keeper. The tavern keeper was a nonplayer character (NPC). An NPC in EL was an automated character (very similar to a robot) created by Entropy and controlled by his programming. It would buy and sell whatever Entropy commanded it to buy and sell, and it would use whatever prices Entropy chose. What we discovered, while talking with this NPC, was that the IP tavern keeper would buy rabbit fur and raw meat for one gold coin each. We could make money, one gold coin at a time, by hunting rabbits.

We spread out around the island and claimed our own hunting areas. It was a simple business: Hunt rabbits, collect gold coins; hunt more rabbits, collect more gold coins. Our scheme was painfully slow, but it was the best process that we could come up with on our own. And no matter how many rabbit furs we sold, the NPC would never change its price. One rabbit fur was always one gold coin.

Hunting rabbits was an extremely slow task because healing items were not widely available to new players. As veterans of RuneScape, we were accustomed to having our health restored when we ate the food that we harvested from the village vegetable garden. But EL was different in a subtle way. Eating food only restored the character’s energy, which slowly drained as the character’s health recovered. It took a long time to restore health after a big fight, and we did not have a way to make it happen any faster. The tavern keeper was not selling any health potions, and we did not have the skill to make them.

The health regeneration took so long that our impatience compelled us to take more risks with our fighting. We would fight rabbits and beavers, and sometimes the more powerful deer, until our health was almost gone. Then, if we couldn’t win, we would try to run away at the very last second. It was inevitable that trying to run away would eventually fail, and jwag_17 was the first to die, killed by a deer.

When a player died in the game, they dropped a random amount of what they were carrying, and they were sent to a place called the Underworld, a maze that looked a lot like the inside of a volcano. It took a long time to escape. After 5 minutes of walking through the Underworld maze, j_wag17 finally poofed back into IP, but most of his stuff was gone and his health was barely above zero. Dying was a huge cost for the small benefit from fighting small animals, and we scaled back our risk to keep income steady. Dying added more time than waiting to heal.

It took about 3 days for three newbies to save 200 gold coins. We thought it was a lot, at least enough to buy something, so we went looking for something to buy. It was the first time that we deliberately explored beyond the newbie island. Following the game’s map, we took the only boat on IP to the heavily wooded White Stone (WS) region and stopped in what was called the Lakeside Village. This is where we found the blacksmith shop, the perfect place to buy new hunting gear.

The blacksmith NPC had some nice weapons and armor for sale, but the only thing that we could afford to buy was a wooden shield, and that was 100 gold coins. The cheapest item on the list was more than a day’s work! It was too much effort and not enough reward. The game was too slow. Everything was too expensive, and there was not an easy way to learn how to play. We had to do something different, so we changed our strategy: j_wag17, discouraged by a lack of direction, decided to quit the game; robo2917 left to explore other parts of the game; and I went back to the island in search of a better way to make money.

A few days later, a friendly player approached me with some advice. He insisted that he knew the fastest way to make money in the game, and all I had to do was follow him to find it. So I did.

We sailed across the continent to a place called the Valley of the Dwarves (VOTD). It was the game’s main market and storage area, and it was packed with players. Just inside the city’s entrance, to the side of an open storage area, sitting on crumbling white wall, was a purple lilac bush. That lilac bush, the player explained, was the fastest way to make money in the game. By harvesting the lilacs and selling them to a nearby flower shop, I could make money in the same way that I made money with the rabbit furs. But what made this method special was the fact that the flower shop was only three steps away from the bush. The way the game was designed, the bush would never run out of flowers no matter how many flowers I picked, and the flower shop would never run out of money no matter how many flowers I sold. It was an effortless way to make money! Harvest flowers, sell flowers; harvest more flowers, sell more flowers. I made as many gold coins in less than an hour picking flowers as my brothers and I made from 3 days of rabbit hunting!

Before the mysterious traveler disappeared, he made sure to show me to the market channel. This, he told me, was where I could trade with other players and bargain for the best prices. Buying and selling with an NPC was possible, but trading with other people would always be a better option, and it came with the potential to make a lot more money. He preferred to make his money by buying iron helms at a low price and reselling them at a higher price. He told me that the market prices move up and down in predictable ways, everything is worth a range of prices, and that I could make money simply by trading. I was not rich enough to afford taking that kind of risk, but I liked the idea of becoming one of the market suppliers. The game did not have an objective, and I was fine with making it all about the money.

A few weeks of picking flowers gave me enough money to start making my own swords and armor to sell in the market. It was a slow process: First, I would walk across a place called the Desert Pines (DP), a map that was top-half forest and bottom-half desert, separated by a river down the middle. There, I would collect sulfur and make fire essences (magic items necessary to make iron and steel bars) with flowers that I gathered in VOTD. Then I would harvest coal and iron in the DP mines, hauling heavy loads from the mines at the edges of the desert to the storage in the center. When I was done with the heavy lifting, I would sit inside the storage and convert it all into iron and steel bars that became weapons and armor. It was a simple process:

1. Make fire essences.
2. Harvest coal and iron ore.
3. Make iron and steel bars.
4. Manufacture swords and armor.
5. Sell swords and armor to other players.

This was the beginning of my EL business career, and the basis behind the structure of the entire game.

The most basic skills in the game were attack and defense, the fighting skills. Whenever a player made a hit on an enemy, they would gain attack experience. Whenever a player dodged an attack from an enemy, they gained defense experience. When a player killed their enemy, whether that meant an animal, monster, or sometimes even another player, they would be able to pick up whatever that enemy dropped on the ground. Sometimes these items were valuable, and they often included gold coins. Almost every player began their EL career by hunting rabbits in IP, but, as they leveled up, they could fight against more powerful enemies and earn more valuable rewards. The fighting skills were the most intuitive because they only required clicking on an enemy to begin fighting, or, in some places, waiting for a hostile enemy to attack. The fighters were the biggest buyers of weapons and armor.

For producers/sellers, it started with harvesting, the other most basic skill in the game. Harvesting allowed players to gather basic ingredients such as such as flowers, minerals, and metal ore. The basic ingredients from harvesting were used in the alchemy skill to produce the next step of items, which included magic essences and metal bars. The magic essences and metal bars were used in many different skills to finish the process:

• The magic skill used magic essences for casting magic spells.
• The summoning skill combined magic essences and animal parts (bones, raw meat, and animal furs) to summon animals or monsters.
• Magic essences combined with flowers made potions using the potions skill.
• Metal bars and magic essences were combined to make swords and armor with the manufacturing skill, and special rings and medallions using the crafting skill.

The potions, weapons and armor, and special rings and medallions were the final products ready to be sold to the final customers. The final customers were the players who focused on their fighting skills, the ­attack and defense skills. If we come full circle, the attack and defense skills were the centerpiece of the game. Every other skill either directly or indirectly supported those two skills. Manufactured and crafted items could increase a fighter’s effectiveness. Potions and magic skills provided the ability to heal quickly. And summoning gave fighters the ability to create their own monsters to protect themselves or to train their fighting skills. Figure 1.1 shows this connection.1

Figure 1.1 How EL’s different skills are connected

EL used an “experience point” system in exactly the same way as every other online game. Every action related to a skill would earn experience points for that specific skill. For example, producing magic essences would earn alchemy experience. Each skill had its own separate count for experience points, and each level took more experience points than the previous level, so leveling up would naturally take longer as a player’s level increased. The skill system in EL also included an “overall level” that added up the total experience points gained from every skill. And the difficulty scaled up with each level. For example, in manufacturing, reliably producing steel shields required a higher level than producing iron shields, while fighters could choose different level monsters to fight against.

It was a simple and effective design, but this was not obvious to new players, and the game did not provide any clues about how to play. This left the frustrated new players to rely on hunting small animals and selling the fur. The lucky ones, like me, were eventually introduced to the lilac bush, where they could pick their way out of poverty. The rest, like j_wag17, simply quit, because, without any guides, it took too long to learn how to play the game.

The Economics (Types of Goods)

Every player in EL was looking to maximize the usefulness of their time. In the game, this means trying to achieve the best combination of gold coins and experience points. Gold coins could buy products, and experience points would lead to higher levels. It was a reinforcing dynamic, because almost everything that a player purchased was intended to make it easier for them to get experience points and level up faster. For new players, the most obvious way to begin was to start hunting low-level animals, but every ...

Table of contents

• Cover Page
• Halftitle Page
• Title Page
• Copyright Page
• Contents
• Preface
• Introduction
• Part I The Market
• Part II A New Guild
• Part III The Rise of RICH
• Part IV The Game Changes
• Appendix A: Who Is Mr.Mind?
• Appendix B: Concepts by Chapter
• Glossary
• Bibliography
• About the Author
• Index