This Virtual World Economics blog asks the question “Does a virtual economy affect player retention?”

The answer is unquestionably yes.

It is well-established that broken economies will chase away users. Two examples:

• The economy in Ultima Online was severely broken because of limited resources being hoarded, resulting in items not spawning. Essentially, insufficient liquidity in the market results in player loss.
• We have also seen that excess liquidity results in player loss; it’s well established that duping, which generally results in an excess of both cash and items in the game, shortens player lifespans as well.

It’s harder to see whether having a robust virtual economy extends player lifespan, since it’s proving a negative. But we have seen that the removal of economic features to simply the economy results in the loss of users; the removal of the merchanting professions in Star Wars Galaxies had a negative impact. We have also seen, via that same game and via Eve, that given the option, a substantial amount of players will choose economic gameplay as their primary means of interacting with the game system.

Economic play is not a tertiary feature in game worlds, unless you consider loot to be a tertiary feature. Loot is reward for labor, albeit in a crudely simulated fashion. You can’t not design economics into your virtual world.

The question the blog post is really asking is about the degree of player-driven economy. Typically, we see a few gradations:

• A completely managed economy — you buy and sell only to the game
• A centrally controlled economy where the NPC shops provide price floors and ceilings, but players can transact among themselves; all items are sourced from shops and loot.
• As above, but items start to be sourced from other players as well via crafting. Typically this is also where you add item damage and decay as well.
• A “player-driven economy” where items of variable quality are sourced primarily from players rather than from NPCs, and there is minimal price-setting performed by the game engine. This can reach the point of being a complete laissez faire environment.

Once you get to the top tier, there’s additional wrinkles you can add into the mix, the biggest of which is whether you have a perfect information economy or not (WoW’s auction house is global, and basically acts like eBay, flattening prices; original SWG merchants and UO vendors were local, and therefore you could hunt for the best prices). The degree of customizability not just in visuals but in statistics permits varying quality goods, etc. Price fluctuations over time can lead to more sophisticated play tactics such as shorting, arbitrage, and the like.

Economic play is a proven game mechanic of great appeal going back to the earliest games, because it provides varying challenges in a defined system model, susceptible to varying tactics and preparation. In other words, it hits all the items on the “fun checklist.”