A Japanese Case for Law Enforcement on RMT

Chinese student arrested after making 150 million yen selling items for online RPG.

It’s intriguing in that gold-farming connection of RMT transactions with other cheap-labor nations is one of important aspects in every regions which have emerging culture of online gaming including Korea.

Some Korean game experts have been saying that the it is possible to lessen intensive gold-farmings by reference to related laws of many kinds.

In above case, the violation of the Immigration Control and Refugee Recognition Law is put to use. To my opinion, the arrested might be a sort of brokers connected to gold-farming shops in his homeland considering the volume of his transactions. Last year, Korean Policy Agency announced that some Korean RMT brokers were arrested for illegal transactions of foreign currency.

Having an inevitable nature of crossing borders, online gamings often clashes with rules of real worlds. What if transactions happen in FTA or common market area?

also posted at gamestudy.org

Finally, Korean Government to illegalize RMT

According to an article of a Korean newspaper, if a recent proposed bill named “Amendment for Game Industry Promoting Law” be through the National Assembly, all kinds of mediating businesses between in-game money and real money could be punished.

The amendment adds the former original bill to a clause for prohibiting acts of exchanging in-game money to real money. This tells that anyone cannot do her business for ‘exchanging’ or ‘mediating’ exchanges of, and ‘repurchasing’ outcomes of games by real money. The ‘outcomes’ mentioned include in-game money, all kinds of in-game points, but in-game items are not among these.

According to an official concerned, RMT mediating companies can be punished for their acts of mediating in-game money. Already well known, most of RMT transactions are being done by in-game money, not specific items. So, all of these companies are at the outside of the law.

As the bill can be validated without any period of suspension, the authorities concerned can regulate any act of mediation and the mediating companies, once the bill is passed. If nothing special happen, the bill is expected to be carried by Dec. of this year.

Meanwhile, the government is also considering another regulatory measure for in-game items that are not included in the above case. After some public hearings are held, they are to submit another amendment until early of year 2007.

*****

* According to one of members of Gamestudy.org, the first edition of the amendment proposed by a congressman had no explicit expression for in-game currency like Arden of Lineage. The bill itself should be checked for getting more exact picture.

The previous news for sales of two mediating companies to IGE might be precursor for this action of government. Actually, as the firm like ItemMania is owned by IGE as of now, this measure might bring a small trouble between two countries. What if the IGE would move the business from Korea to U.S.? Also, the amendment might be strongly influenced by the big scandal about gambling arcade gaming of this year. The most criticized fact about the scandal was the exchange between gift certificates won by game playing(actually it is not playing, but just gambling) and real money. At that time some observers were harshly bashing RMT of online games in the like manner.

Anyway, considering the size and effects of RMT in Korea, this measure is to be another big turn in Korean MMOG market. It is a structural change to effect players, developers, and other derivative companies around online games.

This article is also posted at gamestudy.org

World of Darkness MMO: CCP merges with White Wolf

World of Darnkess MMO? Greetings from the EVE Online fan fest in Reykjavik, Iceland. CCP’s CEO Hilmar Pétursson just announced that his company is merging with White Wolf — the U.S. company behind Vampire: The Masquerade role-playing game and the whole World of Darnkess series of IP. Mike Tinney, the president of White Wolf and the soon-to-be leader of CCP North America made an appearance to bless the alliance.

The possibilities this opens up for the new company are two-fold: 1) taking successful White Wolf properties and turning them into massively-multiplayer games; and 2) leveraging EVE Online IP outside the MMO genre. A World of Darnkess MMO is apparently already being planned. Tinney on ther other hand said he is looking forward to using EVE IP in pen-and-paper role-playing games, strategy games, card games, miniatures, collectibles, novels, and comic books.

EVE Online has already been branched into a collectible card game and a novel. Pétursson says the merge will allow the original team to concentrate on the MMO. The merger has apparently been prepared for a year now.

There have also been other interesting and more economics related talks here today. I’ll be blogging about those later.

Significant increases to Second Life land prices

Second Life Island Store Linden Lab announced a week ago that official land prices in the virtual world Second Life will receive a boost. Currently Linden Lab is renting out 16-acre small private islands to users for a one-time set-up fee of 1250 USD plus a monthly maintenance fee of 195 USD. After the change is implemented, the set-up fee for newly rented small islands will be 1675 USD (a 34% increase) and maintenance fee 295 USD (a 51% increase).

In an interview by CNET News.com, Linden Lab’s new CFO John Zdanowski states that the purpose of the price hike is to make renting out land profitable to the company. According to Zdanowski, seven-year-old Linden Lab has yet to turn in a profit. But due to negative feedback from users, the hike is now delayed until November 15th.

Zdanowski points out that for companies like Sun, Toyota and Coca-Cola that have recently appeared in Second Life, the prices remain negligible even after the increase. “They’re spending hundreds of thousands of dollars to set up an in-world presence, and they’re paying almost nothing for the land,” CNET News.com quotes Zdanowski.

Second Life’s success to date has been built on user-created content, something that commentators warn may be hurt by the hikes. According to Zdanowski, Linden Lab has until now subsidised the growth of the world by keeping prices down.

Due to the impeding price hike, Second Life users and speculators are rushing to claim islands before the November 15th deadline. Existing island owners will not suffer an increase in maintenance fees until February by earliest.

Virtual business ecosystem in legal trouble? China’s Tencent QQ

An avatar in Tencent QQ Tencent QQ, China’s most popular instant messaging service, has been a big interest of mine since I bumped into it in Shanghai. The service works similarly to e.g. MSN Messenger, except that it has a built-in virtual economy based on “QQ coins”. Pacific Epoch reports that the virtual currency has now raised legal concerns.

Users can buy QQ coins for a fixed price of one RMB per coin from Tencent. The coins can be used to pay for premium features, such as decorations for a chat avatar. Coins can also be transferred to other users. In addition to the official premium content offered by Tencent, third parties have begun accepting QQ coins as a method of payment for their services.

Services that I am aware of are gambling and “QQ Girls”, a service where one gets to have a private chat (a video conference?) with a lady in exchange for QQ coins. Both gambling and porn are illegal in China, so accepting virtual money as payment may be a way of avoiding the authorities.

Trading companies buy coins from parties that accumulate them, and sell the coins back to users for slightly less than Tencent’s official rate. Thanks to the official premium content, some coins are constantly drained from circulation, making sure new coins must always be bought from Tencent.

My impression was that Tencent did not take a hostile attitude towards this business ecosystem that had grown around its service. It is a symbiotic relationship: more third party services mean more coins are needed for circulation. It is potentially a big economy, too: QQ is estimated to have more than 150 million users.

Via PlayNoEvil

Making sense of virtual property research

VERN is a forum for research on real-money trade of virtual property, but what exactly does that area comprise? There are over 50 entries in the bibliography, from economic analysis to policy studies — is there any pattern or consistency to this work?

In this light literature review and essay, I distinguish between six branches of research relating to virtual property: economic analysis, economic geography, strategic management, design, law and policy studies, and economic sociology. In addition, information systems and investment theory are identified as potential new approaches. The classification is based as much on existing research as it is a shameless attempt at agenda setting.

Thanks to Ben Gimpert for valuable feedback. Looking forward to your comments.

Terms and concepts

Important terms used in this essay include MMORPG, virtual world, platform, operator, virtual economy, RMT and secondary market. Below I provide a brief indication of the meanings in which they are used here. The most important term in this discussion is virtual property, but I will leave its definition to the end. At some places I substitute commodity for property to bring connotations from economics or social sciences.

MMORPG or massively multiplayer online role-playing game is a type of virtual world. Virtual world is a type of virtual property platform. Other possible platforms include community services like Cyworld and IRC-Galleria, which are not virtual worlds, but nevertheless contain virtual property. Operator is a company maintaining a platform. The network of transactions within a platform, not involving real money, constitute a virtual economy.

RMT stands for real-money trade of virtual property: any exchange of virtual property for real money regardless of the participants (i.e. operator-user exchange is also included).

The term secondary market is borrowed from securities trading, where primary market is that where sellers are the originators of the securities and secondary market is that where securities are re-sold by others. In the context of virtual property, the primary market is understood to be that between the operator/platform and players (not necessarily involving real money), while the secondary market is that where players and trading companies buy and sell virtual property between each other for real money. The term secondary market thus refers to “traditional” MMORPG virtual property markets which do not involve the operator, while RMT refers to all real-money transactions.

1. Economic analysis

Castronova’s (2001, 2002, 2004) analysis of the virtual economy and secondary markets of EverQuest marked a starting point in the academic interest in virtual property. At that time it was remarkable that he was applying neoclassical economics, the study of the allocation of scarce resources, to examine a phenomenon that was essentially digital. Thanks to the artificial scarcity prevailing in the game world, he found that he was able to analyse game assets as if they were physical commodities.

Besides Castronova, at least Nash and Schneyer (2004) have performed basic marginalist economic analysis of game assets. Topics include demand curves, supply shocks, price flexibility, profit margins, arbitrage and market efficiency. Macroeconomic indicators like price indexes and gross domestic products have also been calculated.

After these initial studies established that virtual economies can indeed be analysed using economic concepts, subsequent work steered towards applying this method to some useful end. I discuss strategic management, design and policy studies below.

Being perfect commodity markets from which extensive data could in theory be collected very accurately and inexpensively, virtual economies and secondary markets might also be useful for advancing economic theory. This possibility is widely recognised but so far not explored.

2. Economic geography

Economic geography is the study of the spatial organisation of economic activities such as production and consumption. Economic analyses of virtual economies (see above) include discussions on the locations of resources and markets inside virtual worlds, but this “virtual-economic geography” is a minor topic.

With the rise of professional “gold farmers” in low-income countries such as China and Indonesia, the real-world spatial distribution of virtual-economic activities has began to attract attention in academic discussions. I am not aware of any publications though.

As with neoclassical economic analysis, an approach based on economic geography may find applications in strategic management, design and policy studies, which I discuss next.

3. Strategic management

Strategic management is an academic field centered around the question, “why do some firms perform better than others?” Strategy may be defined as a firm’s theory of how to achieve competitive advantage.

What kind of strategy platform operators should take towards RMT is a pertinent question in the business. In the “traditional” MMORPG RMT setting, the operator either takes a laissez-faire attitude towards RMT activities or tries to enforce a trade embargo. In more novel virtual property platforms like Cyworld the operator may be an active market participant.

My Master’s thesis (Lehdonvirta 2005) was nominally in the field of strategic management, but the connection to that body of knowledge was not strong. In it I discussed the options that are available to virtual world operators in relation to RMT. Another author who has discussed operator strategy in relation to virtual property is MacInnes (2005).

So far this approach has centered exclusively on operators. As the business ecosystems around advanced virtual economies grow increasingly complex, new “legitimate” actors will emerge, asking for analytical attention. At that point, concepts such as resources, capabilities and value networks will be pulled up from the strategic management toolbox.

4. Design

In addition to pure curiosity, developers have a clear practical motivation for studying virtual economies. To be able to design, they must have sufficient understanding of the relationship between choices available to them and the phenomena that result.

Such understanding may be difficult to achieve by referring to design mechanics alone. This can be due to aggregate effects, that is the combined actions of a large number of agents (users or NPCs), or dynamic effects, that is the change over time that arises from interactions between agents. Simpson (1999) provides an account of how Ultima Online development suffered from design choices having unexpected dynamic and aggregate consequences.

Economic analysis is one possible approach to understanding complex systems better. Often it is the virtual economy part of a design that requires this analysis, but economic analysis has also been applied to e.g. social relations with varying success. RMT is something designers ignore at their peril.

Bartle’s (2003) virtual world design book has a chapter on virtual economy design. Ondrejka (2004) discusses Second Life’s economy as part of the design of a compelling platform. Huhh and Park (2005) analyse Lineage’s secondary markets and how they contributed to the game’s phenomenal success. According to them, this relationship is a feature overlooked by Western reviewers.

5. Law and policy studies

The largest body of virtual property authorship is that dealing with legal and policy issues. The legal status of virtual property is a pertinent question e.g. for those wishing to create new business that involves virtual property in some way. Occassional conflicts of interest between operators, users and other parties relating to e.g. secondary markets, scamming and nerfing also tend to bring up these discussions.

Scholarship in this field is often normative, providing suggestions on how laws and policies should be in regards to virtual property. Lastowka and Hunter (2004) provide a good description of the different issues and viewpoints. Grimmelmann (2005) discusses the notion of using real-world law to regulate RMT. MacInnes, Park and Whang (2004) describe social consequences and resulting policy choices from MMORPG RMT in Korea.

Fairfield (2005) defines virtual property as rivalrous, persistent and interconnected online resources (“code”). Rivalrous refers to the situation where one person’s use of a resource excludes all others from simultanously using it, typical of physical objects but not of digital resources. This seems to be a key observation that differentiates virtual property from digital content such as music.

6. Economic sociology

In neoclassical economics, value is accepted to be an entirely subjective thing. If someone is willing to pay 500 € for a virtual space ship, then it is worth 500 € for that person. But economic theory does not attempt to explain why or under what circumstances this may be the case.

Economic sociology is the study of the interaction between economic and social institutions. It recognises that economy is “embedded” in the society, and allows us to look for answers to questions that are outside the scope of economics, such as reasons behind consumer demand – a question important to both policy makers and business developers.

Virtual consumerism, that is, people investing their time and money on virtual commodities, resonates well with the authorship on contemporary consumer society: symbolic value, aesthetisation, commodity-signs, identity and so on. The economic sociological approach establishes virtual property as an extension of the same playing field where consumer culture is played out. From a certain perspective, the 500 € space ship is not qualitatively different from 500 € sunglasses.

My own Ph.D. thesis research takes the economic sociological approach to virtual property, but it will be some time until I publish something in this vein. Meanwhile Malaby (2006) discusses transformations between economic, social and cultural capital taking place inside virtual worlds.

Other potential approaches

As novel revenue models and business ecosystems are created around virtual property, new challenges emerge that parallel the research challenges in information systems research and e-commerce: security infrastructure, payment infrastructure, digital contracts and so on. I am aware of companies considering this need and overlap but not of academic researchers.

Another forward looking approach is investment theory. It is possible to develop valuation models, volatility assessments and even derivative instruments for virtual commodities. For example, companies that directly or indirectly obtain their cash flow from virtual property might be interested in mitigating risk by purchasing appropriate options on the given property.

Conclusions

It may seem that the six branches of research identified above are quite far removed from each other. What does the strategic management of Cyworld have in common with economic analysis of EverQuest secondary markets or Habbo Hotel design? The answer is persistent, interconnected and rivalrous resources, also known as virtual property (Fairfield 2005). Virtual property is what connects these topics and approaches together, and sets them apart from research on content business, virtual communities or copyright law. There is overlap too, of course.

Among the branches identified above, none stand out as particularly amazing in regards to academic standards and achievement, with the possible exception of legal studies. This is understandable, since the area is still new and few people have had the opportunity to focus on it full-time. No doubt the situation is improving though. For example, a number of students working on interesting theses and dissertations have shown up at the VERN email discussion list.

While we rigorously apply the tools and methods of our respective academic disciplines, I hope that we at the same time manage to develop common terms and concepts to agree and disagree upon between virtual economy researchers.

What branch, if any, do you identify with?