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Economic Analysis on Online Game Service

TitleEconomic Analysis on Online Game Service
Publication TypeUnpublished
Year of Publication2009
AuthorsHuhh, J-S.
Date Published02/2009
Keywordsgold farming, micropayment, network effect, online games, real-money trading

This paper investigates economic problems in online game service by two theoretical observations: that there is a strategic situation between a service provider and players, and that the service of online game is under influence of network effects. We model a two-stage dynamic game where a service provider chooses price(s) of its service and game design with players’ optimal choices on their playing time. Network effects make two kinds of optimizing by the firm, critical mass minimization and profit maximization. This paper addresses these two problems by identifying four pricing regimes categorized by the pricing method and the existence of real-money trading among players. This paper shows theoretical cases where regimes with RMT enhance profitability of a service provider, and analyzes two variant regimes affected by RMT, gold farming and micropayment, which are understood as evolution of business model.