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An Analysis of Virtual Currencies in Online Games

Hiroshi Yamaguchi

Komazawa University

September 1, 2004

In virtual worlds of MMORPGs (Massively Multiplayer Online Role-Playing Games), we observe that many players purchase virtual items by using real currencies, which is so-called eBaying. Extending the model developed by Castronova (2001), I analyze the value of virtual items in the virtual and real markets. The analysis reveals that incentive for eBaying is inherent to the game design. In addition, I classify the virtual currencies as a Local Exchange Trading Systems (LETS) because they are used in limited communities, not under control of money supply by the central banks, and not subject to interest rates. Since these currencies are not subject to geographical boundaries, they can potentially be global LETS. The eBaying effectively means that the virtual currencies have exchange rates with real currencies, and thus have become meaningful for our economy. The online virtual worlds increase its importance for our life, and so does the virtual currencies.

Number of Pages in PDF File: 8

Keywords: Online games, currency, eBaying, LETS

JEL Classification: L86

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Date posted: May 18, 2004  

Suggested Citation

Yamaguchi, Hiroshi, An Analysis of Virtual Currencies in Online Games (September 1, 2004). Available at SSRN: http://ssrn.com/abstract=544422 or http://dx.doi.org/10.2139/ssrn.544422

Contact Information

Hiroshi Yamaguchi (Contact Author)
Komazawa University ( email )
1-23-1 Komazawa
Setagaya-ku, Tokyo 1548525
HOME PAGE: http://www.komazawa-u.ac.jp/
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