The Economics of 'World of Warcraft'

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Blizzard
Entertainment Company is one of leading developers in the video
game industry. Blizzard rarely publishes titles yet when they do
individuals can expect them to be of the utmost quality. That was
the case with StarCraft,
the Diablo
series, and the Warcraft
series. Each of these titles has sold millions of copies and are
some of the most famous computer games ever developed. In November
of 2004, Blizzard Entertainment released a long awaited title, World
of Warcraft
, and made history by having created the most
popular massive multiplayer online role-playing game to date with
well over 5 million players registered. World of Warcraft
is primarily set in "Azeroth," a mystical world full of
J.R.R. Tolkien type creatures. In Azeroth, there are two main continents,
Kalimdor and the East Kingdoms, that house a variety of races. These
races are split into two groups, the Alliance and the Horde. The
Alliance is made up of Dwarves, Elves, Humans, and Gnomes while
the Horde is tribal unity of the Tauren, Undead, Troll, and Orc
races. Each have their own story and each seek control of the two
continents. In World of Warcraft, individuals must complete
various missions, gain experience points by fighting high-level
creatures, and may obtain prestige by engaging in warfare with the
opposing team. There are also areas of the game called "instances"
where teams can enter select dungeons in hopes of obtaining rare
in-game items from fierce enemies.

It may seem
odd to the reader that there are economic laws that take place within
the game but, as I soon will show, there are various elements within
World of Warcraft that have expanded the "virtual marketplace"
in comparison to other games. World of Warcraft uses three
different types of currencies: gold, silver and copper. These are
the only currencies that are legal tender though individuals may
trade using almost any item in the game. Gold, silver, and copper
are the also only form of payment accepted at the in-game auction
houses; the nature of these auction houses will be elaborated in
the following paragraphs. At one point in time, gold was incredibly
rare and individuals often used silver to complete transactions.
Large amounts of gold were only held by the most skilled of players
and individuals who had been saving up funds since the release of
the game. Yet in time the supply of gold began to dramatically increase,
and with it, the price of all goods in the game. Hence, because
of the constant increase in the quantity of gold (e.g., inflation),
prices began to rise. Though the quantity of virtual gold has increased,
it is not as a consequence of any Federal Reserve or monetary authority
but due to the labor of individual players. The supply for gold
has been increased by individuals called "farmers," whose
job is to kill the most "profitable" (i.e., will
give up the most gold) beasts and sell the virtual currency they
have acquired in the real world. If one were to look up "World
of Warcraft Gold" on most online auction houses, they would
find a variety of farmers selling their newly acquired in-game currency.
At the beginning of this "farming" trend the price of
gold in real life online auction houses were quite high but as individuals
began to enter the field, the price of United States dollars per
virtual World of Warcraft gold piece dropped significantly.
This phenomenon has caused the prices of all items in the game to
increase radically and, due to a rise in farming, in-game auction
house prices are constantly rising. The abundance of gold in World
of Warcraft is limitless, but it must be laboriously obtained
from defeating creatures; this creates a deterrent to most individuals
that rather buy virtual currency from online auction houses than
take the time and farm the gold themselves. This "farming"
trend has become so popular that now families in China are using
their time to farm gold for World of Warcraft players and
are selling the virtual currency on Internet auctions for profit.
A variety of families have become dependent on the virtual gold
market created by World of Warcraft and "farming."
This phenomenon also can be an application of the subjective theory
of value. For instance, an individual who purchases virtual gold
coins online must prefer current in-game purchasing power versus
the present purchasing power of the dollar bills forgone.

Another interesting
aspect of the game is how items are bought and sold. In most games,
items are sold by the actual software of the game and have set prices.
Hence, the software has a monopoly on all items in the game and
can sell goods at whatever price it deems is appropriate. In World
of Warcraft, however, things are quite different. Individual
players often come across items that they either don’t need or can
not use, in which case these players go to the virtual auction houses
within the game and sell their items at a certain price. The auction
houses work just like real auction houses, aside from using virtual
money, but they are only specific to each team and one can
not sell items at their team’s auction house to a member of the
opposing force. The Horde and the Alliance each have their own auction
houses and each of these auction houses have different price levels
that are often dependent on their population size. As populations
increase on either side, so do the number of items obtained. This
increase in the quantity of items causes the price of those goods
to fall at the auction houses. So, over time, there has been a decrease
in the price of most goods as a result of an increase in the amount
of individuals playing and the number of items found. Where at the
release of World of Warcraft an item could have cost fifty
silver coins, may now only cost a couple copper pieces. These auction
houses have allowed for prices to fall and rare items to become
commonplace. Hence, because of the profit incentives to sell items
at the auction houses for competitive rates, the "standard
of living" of all characters in the game has increased. By
"standard of living" I mean their ability to carry out
their online tasks such as winning battles against the opposing
team. All characters have become stronger, more advanced, and tougher
than ever. There is also a "neutral" auction house in
the game where an individual can sell items to all players, regardless
of their allegiance. This auction house has served to reduce the
price of all goods in the game, on both teams. Where one
item may cost four gold pieces at one of the team auction houses,
it may only cost a couple silver coins at the neutral auction house.
This is an incredible difference and has served to decrease the
profits of those who are marking up their prices. All items are
cheaper at the neutral auction house and its mere presence has decreased
in-game prices. Though the increase in the supply of gold has caused
many monetary prices to rise, the real prices of goods
are falling.

In World
of Warcraft, there are also elements of the division of labor
and specialization. Aside from the different races, there are various
"classes" to choose from; these classes can be compared
to careers. These classes include: Druid, Mage, Shaman, Warrior,
Paladin, Priest, Hunter, Warlock, and Rogue. Each of these classes
help in different ways when trying to defeat high-leveled monsters.
They each lend benefits to their teams by using certain skills to
defeat the enemies. Some beasts are only weak to magic while some
can only be killed by brute force. Each individual in the game must
choose a race and a class as well as specialize in different in-game
"trades." These trades may be blacksmithing, weapon-smithing,
gun-smithing, leather-working, skinning, tailoring, etc. This has
also caused the real prices of goods in the game to fall as well
as having introduced various new items and weapon innovations. In
each of these cases, classes and trades, the division of labor has
allowed increased productivity (i.e., the swiftness and ease
of killing monsters) as well as a rise in the "standard of
living" of all players.

What is marvelous
about economic science is that it can be applied to almost everything.
All human action can be analyzed through it and almost no realm
is cut off from economic analysis. As I continue my research and
expand my intellectual horizons, my understandings concerning the
applications of economic science broadens. World of Warcraft
may only be a game with no true connection to the real world but
it is a realm built by human action; it is a game where all individuals
are free to engage in the virtual marketplace. Throughout the game
there are instances of economic laws taking place, as I have so
described. It is incorrect to believe that economic analysis can
only be applied to "real world" occurrences but in fact
it can be used to understand all interpersonal relationships, virtual
and "real." World of Warcraft is just another instance
were Austrian economic analysis is quite useful in understanding
in-game trends and developments as well as deciphering the elements
that comprise the virtual marketplace.

July
17, 2006

Alexander
Villacampa [send him mail] is a sophomore in economics
at the University of Florida and summer fellow at the Mises Institute.

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