Inflation in virtual economies?

I’ve read a surprisingly well-informed article in the BBC Technology News website about gold farming in virtual worlds. I should not sound surprised, but it is my experience that mainstream media coverage of virtual economies tends to be tainted by sensationalism and/or misunderstanding of the new environments.

Whichever way you look at them, virtual economies are increasingly having relevance in real life. First you have a large gaming industry from China which spends hours and hours farming gold in order to resell it in exchange for real money. This farming has an economic effect in the real world. Figures are sketchy, but the excellent Virtual Research Network calculates that the value of real-money trade of virtual items (RMT) is over $2 billion USD, with a calculated GDP of $28.215 billion USD (roughly the same as Lithuania’s GDP) . In this competitive environment the margins are tight. Each farmer is paid ¥10 yuan for every 100 gold coins gathered (roughly €.95 EUR). The farmer’s boss sells that to a reseller for €2.00 EUR, who then sells it in the market for an average 3€ EUR (and can be as low as £12 GBP for 500 gold).

However, all of this farmed gold must have an inflationary effect in-game. There are games designed to be expensive. My experience in City of Heroes is that it is difficult and time-consuming to be an efficient influence farmer until you have managed certain crafting achievements, after which it becomes much easier. This encourages lower levels to earn the virtual cash. The fact that City of Heroes is not that popular means that there is no currency farming to a great extent, which drives prices down. Contrast that to World of Warcraft. I have started an account to see what it looks like, and I have been amazed at the amount of economic activity in-world. There are constant advertisements about gold. The current currency exchange rate seems to be roughly 500 gold per €20 EUR. What’s more, I have noticed that prices are comparatively inflated to what I have seen in City of Heroes, which leads me to conclude in an altogether unscientific and anecdotal manner that gold farming does indeed drive prices up. If everyone can cough up €20 EUR in order to get good gear, then prices for other items must go up.

By the way, is it just me, or has the media hype of Second Life finally died out? The interface has become unusable, and I just don’t have the patience to wait for everything to render and load. The technology is simply too clunky. I notice as well that Second Life have removed population statistics from their front page. I am guessing that usage is down. On the meantime, World of Warcraft hits 10 million subscribers.