An Economic Analysis on Online Game Service

31 Pages Posted: 30 Jan 2009 Last revised: 31 Aug 2009

Date Written: August 28, 2009

Abstract

This paper investigates an economic problem of a firm that provides online game service. Besides pricing and fine-tuning of its game design, the firm should consider a virtual economic environment of its service, for the policy on this respect can influence its profitability. Among virtual economic issues, Real-money Trading (RMT) emerges as the most important one in online game business, which is defined by players’ unofficial transactions between in-game virtual objects such as in-game currencies, weapons, armors, and money in the real world. This paper addresses impact of RMT on the profitability of the firm. This paper addresses theoretical cases that RMT enhances firm’s profit. This shows why RMT is likely to be tolerated by the firm despite the fact that RMT may violate contractual agreements between the firm and players. To keep track of reality in online game business, we examine impacts that two variants of RMT have on firm’s profit additionally. By comparing four different regimes to price an online game, conditions that each regime earns highest profit are identified.

Keywords: online games, network effect, real-money trading, gold farming, micropayment

JEL Classification: D21, D62, L12, L86, Z19

Suggested Citation

Huhh, Jun-Sok, An Economic Analysis on Online Game Service (August 28, 2009). Available at SSRN: https://ssrn.com/abstract=1335120 or http://dx.doi.org/10.2139/ssrn.1335120

Jun-Sok Huhh (Contact Author)

KISDI ( email )

JuAm-Dong 1-1
Gwacheon, GyeongGi-Do 427-710
Korea, Republic of (South Korea)

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