News, research and discussion on virtual goods, currencies and economies globally.

Deflation of Virtual Currencies, 2004-2009

I’ve published online a spreadsheet of data on the US dollar values of virtual currencies from eight different games, tracked over time from 2004 to 2009. And a Google Motion Chart also for those who like to look at pretty pictures (though this tends to draw attention to the two outliers more than the main deflationary trend).

To be found at:

Richard Heeks
Centre for Development Informatics
University of Manchester, UK

Thanks Richard, interesting

Thanks Richard, interesting stuff. Would you say that the downward trend is mainly due to the life cycles of individual MMOs, or is there some more general industry-wide cause that influences all MMOs? If a new MMO is launched today, does the price start up high and slope down rapidly, or do they start further along from the more mature, gently sloping phase?

Perhaps one example of such an industry-wide cause could be a general maturing of the gold farming and secondary market trading industry, reaching a high level of “efficiency” and being able to adapt to new titles rapidly?

Btw how did you collect the data? In my experience the spread in prices between different sellers is quite wide, was this problematic? Although I doubt any errors in measurement can be blamed for the general trend you have observed.

Any explanations for the outliers?

Virtual Currency Trends and Sources

Just the six questions to reply to, then !! 🙂

1) & 3) Causes of Deflation:

I think deflation is more an out-game than an in-game effect. It occurs due to real-world competition as more gold farming firms enter the field. The only way for new entrants to win market share is to undercut the opposition. From about 2005-2008, I think that occurred at least in part due to the gradual disappearance of the super-profits that firms like IGE were making. Today cost-competition probably occurs through squeezing labour costs (shift to cheaper locations in China; shift to cheaper locations like VietNam; and maybe more use of automated tools like bots), and through greater productivity (i.e. finding ways to make gold more quickly – in part in-game patches may help here such as daily questing on WoW).

If you want more details/evidence on this, see my online gold farming report (and maybe a forthcoming article in Journal of Virtual Worlds Research, if they are kind enough to accept it!).

Just an overall note that if you take a weighted basket of MMORPG currencies (i.e. weight them for estimates of numbers of players), then deflation against the US dollar has been 85 per cent from autumn 2005 to autumn 2009.

Also a note that prices for power-levelling have similarly deflated: 74% fall in price from autumn 2005 to autumn 2009 for levelling 1-60 in WoW.

2) New MMOGs:

I haven’t included it on the spreadsheet but I’m tracking Lord of the Rings Online and Warhammer Online. Over an eight-month period in 2009 (March to November) these deflated 24% against the US dollar: that deflation matches other games, so the slope seems similar.

Incidentally, the apparent flattening of the slopes is largely an artifact of scaling (i.e. currencies have deflated so much that the movement is much harder to distinguish in later years if you are still plotting the figures for earlier years). In general, deflation has been pretty continuous and relentless: of the order of 40% per year an average.

4) & 5) Data Collection:

Here someone may puncture my data foundations (!) but anyway . . . I have been collecting in real-time since June 2008, sampling every six months or so. I collect from five different sites (occasionally have to swap a new one in if a site disappears). Most recently these were:;;;; Plus a couple of specialist sites to get prices for Runescape and EverQuest. The reason I’ve not done more than this is my experience was that prices do not vary very much – perhaps 10% at most. I always pick the same game server.

I think one criticism is that some of these sites might have common underlying ownership but, by sampling the same sites over time, I’m not sure that is an issue since you can see the deflation trend on all sites.

For the more historical data, used these same sites with a mix of http:/// cross-checked with some articles that listed current prices.

6) Outliers with Inflation:

The motion chart does highlight the two outliers – EverQuest and FFXI – which have both seen inflation in their virtual currencies vis-à-vis the US dollar. My own interpretation on that is: EverQuest (basic economics: demand is slipping back as the game ages, so prices rise but the foundation for the data here is thin); FFXI (basic economics: concerted actions against gold farmers have constrained supply, so prices rise). But others may have a better explanation.


other possible causes

I wonder if events on the int’l stage play a role as well. During the credit crisis, the dollar enjoyed a period of surprising strength versus other currencies, as people rushed into the relatively safer currency. I noticed around the time that virtual currencies were tanking vs. the dollar, and perhaps some of the effect could be due to the “flight toward safety”. To test this I guess you would have to control for currency printing in-game (via gold farming or gold dumping by the developers).

I suspect that currency management by the developers could be the stronger cause. But how to test for the volume and velocity of WoW gold in circulation…

Another Macro Factor

Measuring the purchasing power of the USD vis-a-vis any various game token value is different than comparing the value of the USD versus that game’s “virtual currency”.

That is, the USD’s purchasing power changes relative to all goods and services *within* the USD-zone economy, dollars transferred into games trinkets being no different.

But the USD <-> game currency cross rate is not equivalent to the USD versus a real world [convertible] currency. The main difference with game worlds is that there are many of them competing directly with one another for similar (substitutable) services. Insofar as this is taking place within the USD-zone, you cannot assume that any particular game currency is an equivalent risk-adjusted store of value. Even using a basket of weighted currencies doesn’t work because those currencies are directly competing against one another, but not against the USD.

I propose what we’re observing is general USD deflation, which is particularly pronounced for highly discretionary luxury or entertainment goods & services, sometimes overridden by the arbitrariness of the total game world market for all dollars (during which “outliers” seem to appear, even though these aren’t really outlying at all, just reasonably expected variations in a total market segment).

Technically, this is not deflation

it’s depreciation against the dollar.

If there was deflation, that would mean the value of assets within the reference currency is decreasing. (ie, the US is going through a period of significant asset deflation right now as leverage is being pulled out of the system as a result of the financial crisis).

It would be very interesting if you came up with some purchasing power parity metric – similar to what The Economist magazine does for the big mac across world currencies. But you would need something that can be purchased both in the real world with real US dollars and in the virtual world (for use in the virtual world) with virtual currency.