This paper describes a basic supply-demand model for real-money trade (RMT) in the goods produced within synthetic economies, and then applies welfare analysis to the external effects of that trade. The trade has emerged to the level of hundreds of millions of dollars in the past few years, mostly because of the rapid growth in the number of users of synthetic worlds. The externality that results is the disruption of ordinary game play for others: when some players use real money to buy game assets, the game itself is damaged in much the same way that the experience of playing Monopoly would be damaged if some players traded properties for real US dollars. Given the current amount of trade, the damages of RMT may be substantial, and the object of the paper is to provide a plausible range of estimates for the damage under reasonable assumptions about the market for synthetic goods and its effect on game-access subscriptions. The intended readership of the paper is a hybrid consisting of economists potentially interested in new markets in cyberspace, and game industry experts interested in the economic analysis of RMT. Since the expertise of these two groups does not overlap very much, the paper contains much material that is at an introductory level for one or the other. The objective is to provide a final analysis and set of estimates that appear to be reasonable to both groups from the standpoint of their respective expertise areas.

Real-money trading acts as a negative externality on the game subscription market. Seems likely to amount to several million dollars per 100,000 users per year.
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