Virtual Economies ─ Design and Analysis

In the twenty-first-century digital world, virtual goods are sold for real money.Digital game players happily pay for avatars, power-ups, and other game items. But behind everyvirtual sale, there is a virtual economy, simple or complex. In this book, Vili Lehdonvirta andEdward Castronova introduce the basic concepts of economics into the game developer's and gamedesigner's toolkits. Lehdonvirta and Castronova explain how the fundamentals of economics --markets, institutions, and money -- can be use to create or analyze economies based on artificiallyscarce virtual goods. They focus on virtual economies in digital games, but also touch on seriousdigital currencies such as Bitcoin as well as virtual economies that emerge in social media aroundpoints, likes, and followers. The theoretical emphasis is on elementary microeconomic theory, withsome discussion of behavioral economics, macroeconomics, sociology of consumption, and other socialscience theories relevant to economic behavior.

Topics include the rationalchoice model of economic decision making; information goods versus virtual goods; supply, demand,and market equilibrium; monopoly power; setting prices; and externalities. The book will enabledevelopers and designers to create and maintain successful virtual economies, introduce socialscientists and policy makers to the power of virtual economies, and provide a useful guide toeconomic fundamentals for students in other disciplines.

Vili Lehdonvirta is a Research Fellow at Oxford Internet Institute, University of Oxford. Edward Castronova is Professor of Communications and Professor of Cognitive Science at Indiana University. He is the author of Synthetic Worlds: The Business and Culture of Online Games and Exodus to the Virtual World: How Online Fun Is Changing Reality.