This article originally appeared at SWG-de and was referenced by Bartle's Virtual Worlds.  Unfortunately SWG-de no longer has this article, so rather than depend on archive.org to maintain the article forever I've duplicated it here (without permission).


Online World Economy

The Online World Economy
Gil Breau, May 30, 2002
St. George, New Brunswick
Email: gbtator@hotmail.com
©2002

Abstract

New games come out daily under the premise of being a completely different world than ours. They have different races, cultures, economic values, and a vastly different world of morals and senses of reality. Many try, but few live up to the promise. One of the few genres to come out with great detail into making a world where people can live in a fantasy setting is the online gaming industry. Although they do have a large amount of detail invested within them, they’re lacking in certain areas where human reactions can destroy the intended systems.

The economic systems ingrained within the worlds are one of the foremost prevailing areas where such working systems do not exist. This article will be covering both the description of a basic world to familiarize you, the reader, with the setting, and it will cover the basic economic situations set forth by these worlds.

Introduction

Massive Multi-Player Online Games (MMOGs) are quickly growing in number throughout the computer gaming industry. The driving idea behind the game is that you can interact inside a complex fantasy world along with thousands of others simultaneously over the Internet. The experience is unlike any other game genre available, because for many, it becomes more than a game.

Real people playing roles opposite each other creates a sense of community, a place where anyone can go to get away from reality for a few hours a week. The game is a chat room, a fantasy game, and a chance to compete against an opponent smarter than artificial intelligence (AI).

Although this type of game has been present for over a decade now, the industry took the leap from a small niche market to mainstream in 1997 when Ultima Online (UO) was released. To this day, four years and many competitors later, it still holds the official record for most players online simultaneously, and has had over 500,000 subscriptions in its term to date. In total between the many games existing, the number of player subscriptions is above one million. Although there are many players who own subscriptions to multiple games, the industry’s player population is still larger than some small countries.

These games have grown in complexity over the years, offering more interactions, more roles within a world that offers people a chance to participate in unreal and fantastic opportunities. They have become a true global community, with people from all corners of the earth participating. But, unlike most communities, this one has limits set by programming, and when a growing, flexible community hits hard, concrete barriers, things tend not to work as well as designed. A good example of this is the sorely functioning economy that seems to be a staple to online worlds.

The dysfunctional online economy is where this essay will come into effect. It will analyze a generalized world setting offered by the different MMOGs, offer insight onto the economic problems faced by the community and their reactions, and offer some suggestions to offset these problems. This thesis will take a broad look at existing online worlds and offer suggestions for improvement afterwards.

General Analysis of an Online World

To be able to take a good look at what problems lay within the economy of online worlds, a backdrop is necessary. Like any economy, the general attitudes and perceptions of the community based on psychology and habitat affect how the economy works and how it can be adapted. Below are several general descriptions of both psychology and habitat that appear in an online world.

The OW Population

The world population is split between two distinct classes. The first is the people who log on and play the game and the second class is the computer AI. Both play the game through what are called avatars. These avatars are virtual representations of the player, each quasi-unique in appearances and abilities (quasi because there is bound to be overlap in anything man-made that has a small choice pool).

These abilities range from game to game, but consist of three basic groups. These three groups – Combat, Craftsmanship, and Gathering – help to define the groups and roles that characters involve themselves within. Below are some examples of basic skills usually found within these three groups:

Combat Craftmanship Gathering
Dodge Tailoring Mining
Melee Blacksmithing Lumberjacking
Magic Use Carpentry Fishing


*Note: these skills are very dependant on the type of game produced. A science fiction game is much less like to have magic use as a skill, whereas a fantasy game would.

The Player Characters (PC)

The people subscribing to play is the group usually defined as player-controlled characters (PCs). These people often play the game to be able to “role play”, or to play something other than their own selves. Such people often play radically different personalities, anyone who is shy has the chance to be an extravert; kindhearted people sometimes turn to cynical and evil beings; anything and everything is possible, largely due to the veil anonymity allows them to have over their real personalities.

The avatars of such characters have a unique attribute as well; they can never die. If a player’s avatar is ever “killed” within the game, they are quickly resurrected and can proceed playing the game. While this keeps interest in the game – nobody wants to invest six months of time or more in a character to watch it be wiped out – it causes some troubles when dealing with economic problems, which is described later on.

The Player Profiles

Different people play the game for different reasons, but can be commonly grouped together into categories dependant on their motivations. Veteran players consistently abuse such groupings, stereotyping players into certain attitudes dependant on their drive. Bartle’s essay of player types (http://www.mud.co.uk/richard/hcds.htm) addresses the four different motivations that players experience while playing online games. The main driving motivations can be further extracted into various game-mechanics to attract the differing player types. The categories are as follows:

  • Warfare/Combat: This has two sub-categories, those who wish to fight PCs, and those who wish to fight NPCs.
  • Business: This category usually contains mostly crafters, those people who wish to have a job and business of their own to profit from.
  • Social: The opportunity to interact with others of same interest, to gain social status, to be respected.
  • Mastery: People who try to attain everything, whether it is skills, treasures, etc.
  • Exploration: To discover new, strange, and unusual situations. To escape from the norm.
  • Adventuring: To participate in quests of adventure for fame and fortune.
All of the above motivations contain three similarities for reward expectance: Money, power, and social status. When the four player types are combined with the rewards mentioned, we arrive at the generalized groups of players below:
  • The Entrepreneur: A master of his craft, he owns a shop to sell his wares for as much profit as he can attain.
  • The Powergamer: A player who tries to gain power and the highest social status by having everything possible in the game. These players explore, perform, and craft only to be able to know every secret in the game.
  • The Roleplayer: A mix of adventuring and socializing, these players try to keep within their characters being played, much like actors. To them, acceptance among peers is the major reward of the game.
  • The Grief Player: Players who cause mischief, battle with other players, and fully disturb players for enjoyment, to further gain personal profit, and ultimately to satisfy their need for power over something.
  • The PvPer: Players who seek out consenting battles with other players. They seek the challenge of other people’s tactics. Special systems are usually formed for these players so as to not interfere with other non-consenting players. Main reward is respect and a sense of accomplishment.
  • The Gatherer: Players who enjoy exploring and making a business out of raw materials and items sold to people in need of such items.
  • The Adventurer: A master of NPC warfare and adventuring, these players are the most prevalent group. The people within this grouping are more diverse than others, but they are linked together by their desire for profit and social status through their various jobs.
There are, of course, other mixes of possible attitudes to form groups, but the above are the most common ones.

The Non-Player Characters (NPC)

NPCs come in two basic forms; those that are the general population, and then there are monsters. General population is defined as those people within the world that are considered “normal”. They are the average characters to which a PC can compare to and define themselves as the important characters of the world. The main profession that matters to PCs is the shopkeepers, whom buy and sell player-used wares. The general population tends to add color to the world as well, making cities bustle, etc.

The most important group of NPCs to players is the monster variety. These are the characters that offer adventurers a chance to battle and earn income through conflict. Although they are infinitely less intelligent than players, they usually have more advanced skills than PCs, sometimes so much that the need for a group of PCs to vanquish the foe is needed.

The Setting

The lay of the land

The land itself is an important factor in the game. Many games take root from existing fiction, while others create their own. The world creators take great effort to diversify the land as much as possible, including all terrains possible, from jungles to deserts. With such diversity, the natural resources available are vast in selection, giving the developers of the game breathing room to be able to create a widespread assortment of crafted items.

Interactive materials

The world is not totally interactive. That is to say, there are static elements in place that are there merely for depth in gaming experiences. Much like a stage set, the items are there for looks. The only items that characters can interact with are the items that they use in game mechanics (mechanics in-game are the different systems, such as crafting and warfare mentioned above, that a game includes). This in turn causes the economy to be tightly closed, as the assignment of possible profitable professions is limited to what the game mechanics allow.

The Differing Aspects of MMOGs

There are different facets of the MMOG universe that cause people to react differently than they normally would in real life. Such aspects are sometimes caused by the coded world, or just by human behavior. Whatever the cause, these “features” create a differing attitude from players than what would be expected in real life.

The following are four main aspects that cause said reactions.

Fun Factor

The aspect that overrules every thought of making something more realistic is “How fun is the game?” Players do not buy a game to escape into a world where they find just as much work involved as the one they are trying to escape. There are economic words that are completely taboo inside a MMOG, such as taxation and recession.

At the same time, reality is what creates the fun factor for many players. The line between scaring off players and attracting them with realism is extremely fine, and crossing over into the scary side is the lesser of the two options. Designers tend to stray towards a more unrealistic game than one with full-blown realistic features. This allows the game to attract players who only play occasionally and do not wish to waste their time dealing with realistic features in a game world. Those that crave realism in their gaming are usually a minority.

Anonymity

Players have the ability to play a completely different person than their true-life counterpart. Their names, identities, and everything that causes them to be more conservative in real life out of fear of reciprocity has no holds in an online world. Anonymity reigns supreme. PCs can be named with no link whatsoever to the player and can be deleted and replaced if the PC gains negative connotations.

Such abilities to keep their true identity secret can have positive or negative consequences. Shy people, for example, have the ability to extravert and become socially accepted. On the other end of the scale, good-mannered people have the ability to perform evil or unacceptable actions without any backlash to their normal lives.

Bugs

Bug abuse and exploitation is the online world’s equivalent of crimes. Bugs are actions that are discovered by the population that were not designed to be within the system. Such bugs usually allow players who use them to vault themselves to the forefront of different aspects of life. Commonly abused bugs involve counterfeiting currency, stealing secures possessions from others, and rapidly advancing skills beyond what is normally possible.

The population regulation

Online worlds are hosted on computer servers hooked to the Internet. Because of this, programmers try to limit the amount of players that are allowed on a server at a time. This is done to allow the players who are on at that time the ability to play smoothly, without slowdown from an overload on the server and client computers. Servers are also limited in size to foster a sense of society between players.

Either a hard or a soft code programs the limiting of the population. The hard version sets a population limit, only allowing a certain amount of players on different servers and locking any entry afterwards. The soft version is preferred by programmers, where there are enough servers offered for players to join so that statistically, the players spread out among multiple servers until the same number connected to a server is equal to those set in a hard code.

These populations have been growing steadily over the years. UO has servers designed to hold a few thousand players at a time. Everquest (EQ), another online game created a few years afterwards, has servers designed to hold twice the amount of UO. The newest games in design are boasting server populations in the tens of thousands.

The problem with such limited populations is that certain specialty skills and professions are sometimes lacking in availability due to the fact that only a certain percentage of the population would be online at any specific time, therefore raising the probability that a precise profession may not be online at a given moment of need. This sometimes causes some players to create their own versions of the skilled player in question (These characters are called “mules”, which is online slang for a character that the player does not play for enjoyment, but only uses said character to support his playing, or primary, character). Each server population is dependant on the size of the world though, and this problem could continue even as population limits increase.

The Online World Economy

The Online World Economy (OWE) is an interesting model by which one can take a step back and look at an alternate economy that resides within our own global structure. An OWE can be considered an experimental setting, one that could never happen in life, but gives a viewpoint towards aspects of human nature and reactions to certain economic situations. The goal of this part of the writing isn’t towards analysis of this setting and its interpretations, but more to locate problems in existing and future worlds.

To first locate the problems, one must step back and look at the factors that affect the current economic situations. After that, we can locate problems based on these factors and further try to solve them. This writing will look at each step in part before continuing on.

The Why and How

The Players aspects of an economy

Players have differing aspects of what the role of the economy has for them; depending on what motivational goals they have set for themselves. For example, from the player types noted above, each has a differing view on what the economy does for them. The powergamer would see the economy as a hurdle that slows down his advancement rates, while businessmen would view the economy as a scoring system, or how they can make “high scores” within a game without final goals. While each type may have a differing opinion on the benefits/fallbacks, each is, at least to some extent, dependant on it functioning properly.

The Reasoning for the Economy

Even with players having different views on why an economy exists in the online world, there are a few main reasons that it does exist. Zarchary Simpson (The In-game Economics of Ultima Online, http://www.totempole.net/, 7 Apr 1999) wrote in an essay concerning the economics of UO and outlines the constraints of an OWE:
  • Ration power – New characters shouldn’t be wielding ultra-powerful armaments. A well functioning economy will limit access to powerful items.
  • Support specialization – An economy which limits what a player may possess though pricing will force players to choose their items carefully. For example, it tools-of-trade are expensive, then players will need to specialize in only one trade. This encourages individual players to find a niche.
  • Encourage interaction – A well functioning economy can motivate players to meet with each other for trade and work.
  • Provide goals – There are many possible goals in a complex game, just as in real life. Acquiring wealth will generally help a player along the road towards any goal they select. In fact, acquiring wealth can serve as a default goal when the game setting or the player’s imagination temporarily fails.

The Macro economy

The Five Factors of an Economy

There are five main factors that affect any economy; Natural resources, labor demands, physical capital, human capital, and management/entrepreneurship. These factors sometimes take on different forms than those within real economies, but still exist nonetheless. Each factor below is listed with some examples stated originating from an OWE.

Natural Resources

Natural resources within an online world are limited to those resources that are essential towards products crafted by players with various skills. While there are far few less in numbers of products, these resources have a near unlimited supply extracted by the population of the world. It is said to be just nearly unlimited simply because time restrains the amount extracted per day. Even with such restraints, the amounts of resources that can be extracted still outnumber the need for such resources. Newer games, or the second wave of MMOG, in development are fixing this problem by making realistic limits on resources, instead of depending solely on time to restrain the amounts.

Labor demands

Labor within the population isn’t so much demanded as it is implemented within the core design for everyone. The OWE has no programs to help those who cannot make their own money, and the entertainment factors within the game are based mainly on earning money, and most structured challenges (i.e. Monster hunting) within the game reward the player. This gives everyone within the population a “job” of some sort. At the same time, some labors balance themselves depending on the demand and population from other specific jobs. Most of these labors rely on the basic “job” within the game, that of the adventurer. One can assume for all purposes that in this model, everyone begins as an adventurer in the world. As demands increase for certain products, some adventures wander towards jobs that cater to those demands. If demand decreases, some of those workers return back to their starting “job” as an adventurer. This is happening on a continual basis.

Physical Capital

Physical capital comes in the form of equipment. Equipment helps with differing jobs, and is essential to others. The theory of how this capital is maintained changes from world to world. For some worlds, equipment is viewed as an invulnerable possession; once owned, this equipment stays with the owner for the duration of their life. Other worlds go by a more realistic idea, where items decay over time and use. This decay can be withstood for longer by regular maintenance, but in the end there is still a need for replacement.

Human Capital

Human capital is the skills attained by the population. This factor is much like its real world counterpart. Skills are learned over time, and people are limited in how much trained skills they can attain before needing to abandon a skill in exchange for a new one. There is also reasonable flexibility, allowing people to change their lifestyle if so wished.

Management/Entrepreneurship

Entrepreneurship in OWE usually maintain a low level of organization. Most businesses are either sole proprietors or two-person partnership. The world is designed for a more self-serving market with low efficiency, where most sales and advertising are at a local level. Globalization, ironically, is non-showing. Newer games have attempts at a globalization process however, adding an online market, much like E-bay in real life. Whether this turns businesses over from a local to a wider customer base has yet to be seen.

The Ideal Design

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The preceding diagram shows what was ideally attempted to be created within the OWE. The idea was that the flow outward from virtual sources would equal the flow of sources back to the virtual beginning from players, with each of the following as parts of the economy that the players interact with:

Raw Materials

Raw materials are those materials that are the basis for player-crafted goods. These materials flow from the virtual resource in the form of loot off of NPC monster spawns, natural resource spawns, or materials bought from NPC shopkeepers. They either leave the system by failed attempts at creating items, or by successfully creating PC crafted items, which are considered goods.

Goods

Goods are processed in two ways. They are either sold to NPC shopkeepers, returning them to the virtual resources, or are kept within the PC economy, and converted to player inventory. The older online games have a much heavier dependence on NPC shopkeeper’s sales than those in development now, which try to limit NPC sales to lower-quality items.

PC Inventory

Player inventory are those goods that are kept within the world for player use. These can leave the system by degeneration over time, or degradation. Items left on the ground, or within a non-protected source are left to decay. These items, after a short period of time, degenerate from the online world and return to the virtual source. Degradation happens from overuse of an item. After time the item breaks down, and returns to the virtual sources.

Gold

Gold enters the system by differing means. Loot off of spawned NPC monsters, payment for completed quests/missions for NPC characters, and sales to NPC vendors are the main proponents. Gold leaves the system by PC purchases from NPC vendors and repair/maintenance costs. The main portion of gold within the world is circulated from player to player.

Although ideally this seemed to be a good flow of resources, snags appeared quickly. It seemed that players were receiving much more resources than they were contributing back to the virtual source. They were amassing more fortune than the NPC market was able to handle, and soon enough, players were able to imbalance the flow, creating grossly unfair situations. A new idea of economic flow was needed.

The Faucet-Drain Design

The new idea came from a concept of a faucet system, where the concept that everything created from the virtual source in the world would sooner or later find its way out again, resembling much like the water in a sink. The water was supplied by the faucet, and after circulating within the sink, left by the drain. Once the faucet was turned on, it could be regulated, allowing so much flow of resources into the economy to attempt to balance the system. The drain on the other hand was less flexible. Drains were designed to be the exit for resources from the online world. They were designed in effect as inescapable means of taking resources from the economy. Some, like the failed manufacturing, were taken from the previous model.

But the major problem was the gold drains. Although they were present, most were presented as luxury items instead of necessities. This allowed players to further hoard their gold, throwing the system out of proportion yet again. Fixing this prevailing issue meant to slow the faucet and increase the drains available, and enforce them. To fix the economy by limiting the resources allowed and forcing players to give up their money caused worry that it would ruin the “fun factor” of a game and therefore the idea was abandoned. Thus the system was left as an ever-imbalanced economy.

This is the model currently used by most MMOGs in some form.

The Separate Economies

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The NPC to Player Economy (NPE)

This market was part of the ideal concept first held in online games. The flow of raw materials into the PC-to-PC economy equaled in value to what was taken out through different NPC sales. Most cases where failure occurs concern the flow into the PC-PC economy being less than what gets taken out.

The Player to Player Economy (PPE)

A large part of the problem of why the flow is less going out of the PPE is that the developers wish to create a game that allows all the players to be interactive with each other, while still providing a fallback income from the NPE for the people who slip through the cracks and cannot participate in a fully independent PPE. Because of this fallback scheme, the incomes essentially double themselves. Large percentages of the population save half or more of their incomes, sending the value of the dollar in a downward spiral. The player market circulates existing money from player to player, while the NPC market grossly increases the amount of money in circulation. Price hikes of exorbitant amounts are not uncommon to see within the online worlds because of this.

The Market

Markets in online worlds represent what is called a perfect competition. In this type of market, every firm in the industry is a small producer who creates a homogeneous product, and has their selling price set for them by the market for that industry. Below are some common aspects that show up in all of the markets in an online world, along with some of the problems presented by such aspects.

The Level of the World Market

The level of marketing in the game is one that lies more towards a local market scheme. The crafter does the sales himself, or a computer-controlled vendor hired by that crafter. These “stores” tend to generalize, trying to offer as much variety as the crafter can create as to improve sales. Besides the minority of consumers that will be regulars, most buyers will be those that are in immediate need and happen to come on that vendor as the first one who sells what is in need. One reason this happens has to do with lack of advertising within the world. Most advertising happens in the metagame, or outside the online world, where most players do not have a lot of interest or attention for such advertising.

This causes the market to be volatile for each and every competitor, with profits varying greatly from week to week. Often producers rely on the regular consumers as the only explicit profits, determining from there whether there is valence in continuing operations.

The unlimited factors

In a market setting where people find no limits on what they can earn due to the inflating amounts of money in circulation, the sense of value sometimes gets left behind in an all-out attempt to gain everything possible. The world no longer is based on what is needed, but what can be made available. Possessions are only valued as long as it is the most trendy, the most expensive, or whatever other goal is set into the mind of the player from the beginning.

One of the biggest offsets for the markets in an OWE is that the production rates always exceed the consumption rates by astronomical amounts. The amount needed of a certain material may only amount to an average of fifty sales per producer on a weekly basis, but in that amount of time, that producer can attain enough material and create as much as four times that amount, if not more. This most likely happens due to two reasons: Skill growth and Time. Most skill growth within MMOGs is based upon usage. The more practice and accomplishments made, the higher your skill gains. For crafters, this creates a problem where their items are no longer created solely to sell, but for skill growth as well. As for the time factor, if a player is straightforward in his desire to solely play that crafting skill, all his allotted playing time will be towards manufacturing products, and most often the production level is far more than the demand. Both cases represent an oddity in economics; the demand and supply are independent of one another.

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Determining What the PC Can Create

What causes an item to be craftable by the players and what causes them to be handled solely by NPC vendors? Placement of said items is determined by their usage and value. The player population generally makes the more important and frequently used items. NPC merchants sell the lower end items, which have limited use and value in the player’s world. On the other end of the scale, NPC merchants also sell the extremely pricey items such as housing and vehicles as well, as to increase the amount of gold in a drain.

The Continuing Problems

The Clogged drain

Drains still are less than sufficient in draining the amount of cash flow from the online world in order to balance out the economic system. While the mechanics are there to change prices and implement new drains, developers of existing games are reluctant to do so. Players, in the past, have become irate at the thought of taking their earnings and rights from them, and game designers try to stay away from losing customers over such arguments.

This leaves games with the problem to solve the drain issue at development, before the players become accustomed to the level of income in the game. This can be problematic because they are implementing systems before behavior is known. If the level of gold drained out of the system is inadequate at first, then the attempt to fix it ends up being a game of catch up.

The “Everything for Everyone” paradox

People like their possessions, and gaming worlds are quick to supply them what they desire to keep them happy. Players like to try and own everything in a world, and even if it takes a strong determination, most end up owning a large percentage of the varying possessions in the game.

Hoarding

Hoarding is a by-product of the paradox. Once owned, the nagging voice that says “this may be useful someday” comes into play, and players end up storing all the items that come into their possession. Instead of being recycled through the economy, the items get stored away, increasing the need to produce more, and decrease their overall value in the world market.

Decreasing Demands vs. Increasing Produce

Because of the effects of hoarding and “mule” characters, the amount demanded of an item in the market continually decreases. At the same time, new players who have a desire to craft, as well as more frustrated players creating “mules”, add to the increasing productions. The fact that skills increase only by repetitive creation of an item only further ensures that overstock will be a constant problem.

The Inefficient NPC shopkeepers

NPC Shopkeepers have always remained static. The prices of their wares have never taken into account for inflation in the online world, and present difficulty for keeping the economy balanced. Since the prices never change on the NPC market, players who may have some of the same items for sale must compete, meaning while they may be buying raw materials at inflated prices from other players, their sales must stay at initial release prices to keep competing with the NPC market. This drastic difference in price values commits the crafter to ever-decreasing profit margins, until it hits the point that they can no longer support themselves.

How to Change for the Better

The Mechanics

First and foremost, the way crafting is handled at a mechanic level must be changed. Players flood the market with wares because it is the only way to become better at their craft. Skill increases need to be diverted away from rewarding the creation of items and more towards their actual use. Rewarding crafters for making the items encourages them to create too many for a market to handle, while only rewarding with what is used in the market tells the crafter it is useless on both a profitable and skill-gain level to make more than is demanded.

Corporate and Capital Changes

The Addition of a Corporate Structure

As of the moment, players work out of small “mom and pop” style stores. The idea is that everybody deserves equal chance in a perfectly competitive market. The problem therein is the fact that there are way too many players who own shops for a main (or secondary) character who has items to sell.

Giving the structure a shakeup would really help contain the flood of players who own these small shops, and help with the regulation of items. Players who craft need to be divided into two main groups: The retailers and the wholesalers.

The wholesalers would represent the main portion of the crafting community. They would be the crafting population, who sells to established business places, which would retail as the market demands. Creating skill-increase rewards for players who follow this structure makes it more feasible to go along with.

Discouraging the Small-Time Crafters

The most crippling cause of decreased revenues and forcing businessmen out of their trade are players who create a small, part-time crafter (as a secondary character) who only makes items needed for that player’s other characters. This is commonly known as muling in the MMOG community, and often frowned upon, even if a large proportion of the population participates in it.

The easiest, most efficient way to eliminate this problem is by only allowing players to create one character on a server. This allows those that wish to make a living off of wares able to do so, and eliminates those players who only create a crafting character to meet their own needs.

The secondary approach to this problem is to create merchant characters as a higher maintenance character. Making the skill set more involving, which spans everything from creating more rewards and missions to making the skills harder to learn, maybe the longer and more time consuming method, but in the end, it rewards players with more diverse play styles to choose from when playing the game. It also forces that character to contribute both economically and socially to the status quo.

Proportional economies

A big problem that adds to the inflation of the economic structure is the fact that no matter how large the Player-side economy gets, and how much usage lessens in the NPC-to-PC economy, the NPC market still does not change. NPC Shopkeepers never diminish in number as the public demands less of their wares. Prices never increase as inflation begins to set in. Their demand to purchase from players never diminishes as their own revenues wane. It becomes a large and easily exploited problem in the economy.

NPC shopkeepers do have some value, especially when a world is new. Their value to inject money and wares into the player economy for stimulation purposes is essential. They are also a boon to new players to the world, offering them a quick way to involve themselves into the economy.

But, NPC shopkeepers become less and less needed as the world grows. Players begin setting up shops, and these players are in need of the business that the NPCs initially had. Purchasing raw materials and salvageable items becomes a necessity in creating the demanded wares for players, and the NPC shopkeepers keep the prices down while the value of money deflates, creating less profit for the PC crafters.

Phasing out the population of NPC shopkeepers as the population grows eases this problem. Businesses are more attractive, becoming not just a place to shop, but a place to sell as well. The NPC-to-PC economic engine slows down to a level where the output of wares and money is equal to the level leaving the PC economy (See taxation below for distribution of such output). Their exit from public buildings within city limits also sets up an opportunity for flourishing businesses to rent out prime retail space, further encouraging a healthy PC economy.

Although the PC economy gains numerous benefits from such a move, the main goal is to staunch the flow of resources into the world. Phasing out the NPCs to a much smaller level still allows them to distribute resources to newer, inexperienced players, but it slows the flow of such resources to such a level that it stabilizes the economy without inflating it further.

Government Intervention

There are two forms of government in an online community. The larger government, which is in charge of making sure unemployment rates and inflation stays low in a real life scenario is represented by the gaming company that controls the mechanics of the game. The lesser, more local governments are those run by player communities.

‘Good’ Taxation

One of government’s strongest tools is taxation. Highly unused in online games, it could help solve the issues surrounding hoarding and clogged drains.

Good taxation, for an OWE, exists in giving everyone equal footing with a flat tax. Everyone loses the same percentage of their overall value, and while the amounts taken from taxing may be different, their impact is equal for a community with differing incomes.

Empowerment of Player Government

Giving players the opportunity to help remove the stress of inflation, while giving them entertaining distractions in the form of official mechanics to maintain their communities, is a boon to any company. The player government helps to regulate the same problems that the larger company government is working on, but at a more regional level.

Maintaining the Drain

Even at the risk of losing some irate players, online games must have their drains working properly to keep the economy in balance. This means that prices on items, tax rates, and any other drains that the companies install into the system must be maintained and constantly updated to battle the risk of increased amounts of gold in an economy. Without a clean working drain, the flow of gold seizes up and increases the inflation rate.

Conclusion

While the inclusion of an efficient economy may be found as a hindrance to advancement for some, an inefficient economy boasts even more serious problems of player losses and canceled subscriptions. There needs to be changes in the problems discussed above to have the economy working smoothly. While an OWE is unique in the restrictions of its workings, we must keep in mind that those that play within this environment are still human, and are apt to the habits often displayed in our own economy. Using solutions from our own real economy, while maintaining the fun factor involved in a game, may be tricky; it is in the end, the best solution.

Appendix 1- Solutions for SWG

The real question for anyone who is reading this article from a Star Wars Galaxies perspective is “how does it apply to SWG?” Some of the problems associated with the older first version MMO games have had corrections attempted, and in between the months of studying economics and the time I actually got around to finishing this article, some of the solutions were uncannily the same.

On the other hand, some of the past problematic systems have been replaced with different systems with their own potential issues. Monsters and their association with loot and money has been altered, but not altogether removed.

The system now relies on a mission generator. This is SWG’s version of a faucet, where the virtual money comes from. While monsters carrying loot had a social repercussion as well as an economic one (we were taught to kill monsters, classic good vs. evil conflict), missions create an abstract way of gaining said money. Instead of direct rewards of money to players for killing bad guys, players must first accept missions, which then reward them for their actions.

The problem still exists that money is accepted from a virtual source, giving unlimited potential to how much money will flow into the world. Without limitation on the amount of missions accepted, either by very harsh time restraints (much like UO had to do with its escort program), or a limited amount of missions generated per day, the inflation of money will still be a problem. All these potential issues lead to the main solution for an economy.

The Central Bank

Online worlds need a central bank instead of relying on the faucet->drain system. In this manner, the cash flow into and out of the world economy can be monitored, and each system that deals with the inflow or outflow of money can be tweaked to assure that the currency rate remains stable.

The economic equation S+T=G+I+NX states that the money that leaks out of a system- Savings (S) and Taxes (T)- are equal to the money that gets injected into a system – Government Spending (G), Interest from Investments (I), and Net Exports (NX). In an online economic system, there are no interests from investments, and government spending is equated into the virtual faucet (V) within the online world. The net exports of the system would be the difference between the sales of NPC vendors and their purchases. Taxes represent all maintenance costs and flat taxes imposed by the system (and not player governments). In addition, there is also the fact that items of value do decay after time (D), adding to the money leak. Therefore the equation can be simplified down to S+T+D=V+NX, where D is calculated on the costs final products minus the costs of raw materials involved.

The main role of a central bank in an online world is to make sure that V=T, so that the faucet flow equals the taxes and maintenances costs that are routinely taken from the system. In this way, they can keep the flow of money equal to the outtake-the main theorem behind a faucet->drain system- at constantly changing rates, depending on the population.

For example, on week one the total population of the server is N. At the end of week one, the total taxation (T) and value of the difference between cost of raw materials and final products that decay (D) taken from the population equals 15% of the currency in flow. At the start of week two, the population has increased by 10%. The central bank takes the population hike into consideration when giving out the weekly virtual faucet money (V), and adds 10% to it, so that even with the change of population, everyone can earn back what they lost. Therefore, the equation would look as follows:

T+D = V*(1+Change in Population) = 0.15*(Total Currency Flow)

Note: The percentage of total currency is changeable depending on the amount needed to satisfy the player base. Also note that the value of raw materials (r) in the decay variable are removed from the equation due the fact that once decayed, their value is recalculated into adding more raw materials(R) into the world, as the following equation:

R=r

The money accumulated in (V) would then be distributed as percentages over the different mechanisms that supply the players with money. The percentage amount distributed to each mechanism could be changed internally as needed by the game developers, as different systems become popular.

With this central bank theory in place, no matter what amount or type of faucet systems that comes to be in place, they only become as effective as the drains that complement then.

What does this system do?

It encourages less hoarding

Players as less apt to hold onto items that may be of value someday if they realize that by allowing them to decay, they not only add more raw resources back to the world, but add more money into the system that they can earn.

It increases immediate spending

Because the value of money decreases due to the impact of loss from taxation, more people will be willing to buy items immediately, circulating the cash flow around to other people while also decreasing savings. The decreasing of savings will result in less chance of inflation.

It creates equal opportunities

People starting the game have an equivalent opportunity to gain equal amounts of money as a player who has been playing for months, because of the increase in cash flow due to population. In this manner, it helps newer players integrate into the economic system faster.

Conclusion

In the end, a central bank would not only battle inflation, but it also helps create an equal playing field for both newer and older players to compete on. Also, the bank creates in itself a system where the developers can monitor how money flows around the system, and if there is a slowdown or an increase in the speed of flow, they can pinpoint the problems and adjust the system as needed. A central banking system not only complements the current systems of the faucet->drain, but also fixes its inherent flaws and leaks.

References

Acknowledgements

Thanks to Steven Molen and Colin Murphy for their help in finishing this essay. Thanks to Star Wars Galaxies database (http://swg-de.emr.net/) for allowing me to host this thesis on their site and for converting it to html. Also thanks goes to Raph Koster, Richard Vogel, and many other developers who have spent so much time and effort into producing the great online games in existence.
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