January 25, 2002 12:00 PM PST

"EverQuest" spins its own economy

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The business model for online gaming is still evolving, but at least one popular online game has already created a powerful free-market economy, according to a study.

Edward Castronova, associate professor of economics at California State University at Fullerton, see related story: Online gaming seeks secret to profits recently completed a study of the economic activity surrounding "EverQuest," a popular online role-playing game. In "EverQuest," players control characters that acquire skills and possessions that can be bartered within the game or sold for real money on online auction sites such as eBay.

Based on a review of thousands of completed auctions for "EverQuest" items and in-game currency, Castronova concluded that players earn an average wage of $3.42 for every hour they play the game and collectively produce annual gross "exports" of more than $5 million.

And if the "EverQuest" universe of Norrath were a country, its per-capita gross national product would be $2,266--comparable to the 77th richest country on Earth and ranking it between Russia and Bulgaria. Platinum pieces, the in-game currency known as pp, end up with an exchange rate of about a penny per pp, making "EverQuest" currency more valuable than the Japanese yen and the Spanish peseta.

"It's a robust, free-market economy filled with wealthy, hardworking people," Castronova said. "What you see with 'EverQuest' is that economies happen by themselves. If you get a bunch of people together and they have things they can produce and opportunities to exchange them, you've got the makings of an economic system."

Castronova also sees "EverQuest" as an example of what can happen when economic regulation goes awry. Sony officially forbids players from exchanging "EverQuest" items for real money, claiming all game items are its intellectual property. Yet the official bartering system within "EverQuest" is so cumbersome and expensive that players feel compelled to make outside transactions on auction sites, Castronova said, resulting in a Cuban-style system where U.S. dollars trump the official economy.

"Outside the game, it's really easy to exchange goods," Castronova said. "In the game, it's more like a medieval bazaar...It's like if somebody in Afghanistan had some really valuable thing they wanted to sell to someone also in Afghanistan. They'd want to find a safe place outside the country to conduct the transaction in U.S. dollars."


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