Simple Economics of Real-Money Trading in Online Games

Abstract

This paper is to provide a theoretical investigation on real-money trading (RMT) observed frequently in online games. To complement former studies focused much on irregularity of transaction itself, economic incentives behind RMT are modeled and identified by reconsidering related economic studies. First, RMT is analyzed by economic incentives of online game players. Second, economic impacts of RMT are explored in the context of network externalities. Third, welfare implication with respect to game servicing firm and players is addressed in a dynamic context. Fourth, two issues of RMT, gold farming and micro-payment, are shortly addressed as mini-cases for the analysis.

Keywords: real-money trading, network externalities, online games, gold farming, micro-payment

JEL Classification: D62, L14, Z19